The new s75B ITA authorises a unified fixed-amount penalty regime for all forms of non-compliance, e.g. late filing of returns. The actual penalties are contained in separate Regulations published by SARS.
The new Regulations came into effect on 1 January 2009, and apply to all instances of non-compliance occurring on or after 1 January 2009. In the case of pre-existing non-compliance (e.g. matters that were already overdue before 31 December 2008), the new penalty regulations will apply from 1 April 2009.
The Regulations apply only to the Income Tax Act, and would thus also cover other taxes like Donations Tax and STC (etc.), but not VAT and Estate Duty (etc.), which are taxes governed by other Acts.
The regulations authorise SARS (at its discretion) to impose the following penalties per month, depending on the taxpayer’s previous year’s taxable income:
** see http://www.etaxes.co.za/docs/TaxAlert9Feb.pdf for table
The first incidence of the penalty is triggered on the date of the non-compliance. If the non-compliance is not fixed within 30 days, the penalty is levied again successively every month. In this respect, there is a clear intention to penalise more severely taxpayers who do not inform SARS of address changes, i.e. current address details are not on record with SARS or if SARS is unable to deliver the penalty assessment:
** see http://www.etaxes.co.za/docs/TaxAlert9Feb.pdf for table
These fixed-amount penalties are separate from the percentage-based penalties that might also apply in some cases.
Two categories of companies will never pay less than the Category (vii) penalty (R8,000 per month) even if they have an assessed loss, namely:
* all listed companies (and their “group” companies); and
* any company whose gross receipt/accruals exceeded R500m in the previous year (or any other companies in its “group”).
An exception exists for companies that did not trade for the entire previous tax year
(Note that the “group” definition for tax purposes requires, inter alia, a 70% holding.)
The actual non-compliance being targeted (i.e. triggering the penalties listed above) is as follows :
a. failure to register as required by the ITA (e.g. as a taxpayer, employer etc);
b. failure to notify SARS of a change in address;
c. failure by a company to appoint a public officer, domicilium, etc.;
d. failure to submit a return or other required documents/information;
e. failure to make available required information, etc.;
f. failure to reply to or answer a question when required;
g. failure to attend and give evidence when required;
h. failure by an employer to notify SARS of a change of address or the fact of having ceased to be an employer;
i. failure by an employer to submit a monthly declaration of employees’ tax;
j. failure by an employer to provide details of an employee;
k. failure to deliver an employees’ tax certificate to one or more employees as and when required by the ITA;
l. delivery by an employer of an employees’ tax certificate without first rendering an employees’ tax return;
m. failure by a provisional taxpayer to submit an estimate of taxable income as and when required under the Act;
or
n. any other non-compliance with an obligation imposed under the ITA.
Note that these fixed-amount penalties are separate from the percentage-based penalties that might also apply in some cases (e.g. 10% for late payment of provisional tax).
There are also several other rules in the regulations, dealing with (for example) procedures, possible remittance of penalties, objection, and so forth.
Thursday, February 26, 2009
Thursday, February 19, 2009
Income Tax Act to be rewritten
- Sanchia Temkin - Professional Services Editor - Business Day
THE government has embarked on a huge project to rewrite the Income Tax Act. This is in line with plans for a new social security dispensation, which is expected next year.
“The Income Tax Act is nearly 50 years old. It has been amended and extended over the years to cover business transactions and developments that were unheard of when it was introduced. It is therefore to be expected that its flow may not be as logical as may be ideal, or that there may be inconsistencies in its language,” South African Revenue Service (SARS) spokesman Adrian Lackay said yesterday.
SARS and the treasury had been in discussions with the International Monetary Fund (IMF) with respect to the rewrite of the act, said Lackay. The IMF had offered technical expertise to assist the rewrite, he said. But there would be a phased approach to rewriting the legislation.
As far back as the 1990s the government had proposed rewriting the Income Tax Act and a leading academic was briefed to lead the process. However, the process was postponed due to various complications. Finance Minister Trevor Manuel said in 2005 that a rewrite of the legislation was on the cards but the government was not in a position to say when it would be done.
Last week, the budget review announced the rewrite of the portion of the Income Tax Act dealing with employment income. Lackay said this part of the act was chosen to assist the largest number of taxpayers, the ordinary people of SA.
Emil Brincker, a tax director at commercial law firm Cliffe Dekker Hofmeyr, said the government should be cautious about rewriting the act in its entirety. “Tax analysts and taxpayers are used to the terminology of the legislation. Further, case law has evolved for decades around the act,” Brincker said. “The government needs to consider whether it is going to be modelling the law on other jurisdictions, such as that of Australia or New Zealand. This is what happened with SA’s Companies Act. The question needs to be asked whether SA wants to aspire to another country’s tax laws.”
Brincker said the tax laws should be rewritten only for administrative purposes.
Charles de Wet, a tax partner at PricewaterhouseCoopers, said it was understandable that the issue of employment income was on the agenda as the definition of “remuneration” ran through three different laws.
Rewriting the law was a complex job. “It needs to be carefully planned and thought through,” De Wet said. “It is also dangerous to get rid of precedent.”
The 2005 budget review announced that a Tax Administration Bill would be released to eradicate duplication of administrative provisions in various tax acts. Lackay said this had proved to be a more ambitious task than initially anticipated but an internal draft of the bill was at an advanced stage.
THE government has embarked on a huge project to rewrite the Income Tax Act. This is in line with plans for a new social security dispensation, which is expected next year.
“The Income Tax Act is nearly 50 years old. It has been amended and extended over the years to cover business transactions and developments that were unheard of when it was introduced. It is therefore to be expected that its flow may not be as logical as may be ideal, or that there may be inconsistencies in its language,” South African Revenue Service (SARS) spokesman Adrian Lackay said yesterday.
SARS and the treasury had been in discussions with the International Monetary Fund (IMF) with respect to the rewrite of the act, said Lackay. The IMF had offered technical expertise to assist the rewrite, he said. But there would be a phased approach to rewriting the legislation.
As far back as the 1990s the government had proposed rewriting the Income Tax Act and a leading academic was briefed to lead the process. However, the process was postponed due to various complications. Finance Minister Trevor Manuel said in 2005 that a rewrite of the legislation was on the cards but the government was not in a position to say when it would be done.
Last week, the budget review announced the rewrite of the portion of the Income Tax Act dealing with employment income. Lackay said this part of the act was chosen to assist the largest number of taxpayers, the ordinary people of SA.
Emil Brincker, a tax director at commercial law firm Cliffe Dekker Hofmeyr, said the government should be cautious about rewriting the act in its entirety. “Tax analysts and taxpayers are used to the terminology of the legislation. Further, case law has evolved for decades around the act,” Brincker said. “The government needs to consider whether it is going to be modelling the law on other jurisdictions, such as that of Australia or New Zealand. This is what happened with SA’s Companies Act. The question needs to be asked whether SA wants to aspire to another country’s tax laws.”
Brincker said the tax laws should be rewritten only for administrative purposes.
Charles de Wet, a tax partner at PricewaterhouseCoopers, said it was understandable that the issue of employment income was on the agenda as the definition of “remuneration” ran through three different laws.
Rewriting the law was a complex job. “It needs to be carefully planned and thought through,” De Wet said. “It is also dangerous to get rid of precedent.”
The 2005 budget review announced that a Tax Administration Bill would be released to eradicate duplication of administrative provisions in various tax acts. Lackay said this had proved to be a more ambitious task than initially anticipated but an internal draft of the bill was at an advanced stage.
Wednesday, February 4, 2009
Critical issues to be addressed
- Paul Gering, CA (SA) - a tax director - PKF Chartered Accountants and Business Advisers
Every rugby spectator is a selector, and every taxpayer a Minister of Finance, which is why Trevor Manuel is inundated with budget advice at this time of year.
At this time of global economic turmoil, there are some critical issues that need to be addressed. Job preservation and creation is one, and encouragement to save another.
Government needs to stimulate the job market while also creating retrenchment disincentives. A penalty for retrenching workers can be created by adding back into an employer’s tax bill 20 percent PAYE reduction caused by the decrease in employees. At the same time, an additional deduction, of 20 percent of PAYE increase during the year of assessment in which jobs are created, could be granted to employers.
Job creation will also be stimulated by encouraging new businesses. To this end, the venture capital incentive announced last year by the minister was a bold step, but unfortunately it is not going to provide businesses with the access to funding they require until the low levels of gross asset value that have been set are raised. It would therefore be helpful if this venture capital incentive was expanded.
Changing people’s behaviour is never easy, but our already weak culture of saving might be encouraged if the minister were to dramatically increase the tax-free portion of interest that can be.
While the stimulation of employment and savings should lead in time to increased tax revenues, this will be of little avail if the present misuse of tax funds by government departments continues. Poor controls, leading to unauthorized spending and overpayment for services, must be improved. The Auditor General ought therefore to be given a larger budget so as to perform expanded control tests – with the active participation of private sector audit firms – and to do this more often.
The poor state of education in the country also needs to be addressed. Generally, private schools achieve much better results than state schools, showing clearly that far more resources need to be mobilised if education is to be improved. Many private schools have the capacity to teach more learners. The minister’s bold move last year to increase the deductions allowed for bursaries should therefore be expanded to allow all taxpayers, including employees (who are currently limited in this regard), to treat 20 percent of all school fees they pay (thus not only their children’s fees) as tax deductible. This would apply up to a limit of R5,000 per learner.
A final suggestion is that a new tax amnesty should be announced. The foreign exchange amnesty initiated a few years ago allowed many people to regularise their tax affairs without paying crippling penalties. A subsequent, more limited amnesty for small businesses that had been guilty of local tax evasion or administrative non-compliance was announced a few years later. Perhaps it is now time for a final all-inclusive amnesty to be announced to finally close the chapter on past irregularities.
This amnesty would have to cover all business structures, complex and simple, listed and unlisted, with different levels of penalties being set based on turnover in the year of assessment: for example, turnover up to R50 million, then R200 million, then anything above that.
The rationale for such an amnesty is four fold:
1. With the economy in decline, companies facing large arrears in tax liabilities could face liquidation.
2. The capacity of SARS to perform regular company audits is constrained, so that past infringements are not easily being detected.
3. There are many companies previously involved in aggressive tax planning that would like to close that chapter should the penalty for doing so not be too severe.
4. With tax revenues likely to drop with the decline in the economy, this is a good time to boost revenues with proceeds from the amnesty.
Mr Manuel’s job of balancing the budget this year is not an enviable one, but judging from past achievements he will surely do a fine job come February 11 when he presents the country’s budget to parliament. Perhaps he’ll even incorporate some of the above well-intended advice.
Every rugby spectator is a selector, and every taxpayer a Minister of Finance, which is why Trevor Manuel is inundated with budget advice at this time of year.
At this time of global economic turmoil, there are some critical issues that need to be addressed. Job preservation and creation is one, and encouragement to save another.
Government needs to stimulate the job market while also creating retrenchment disincentives. A penalty for retrenching workers can be created by adding back into an employer’s tax bill 20 percent PAYE reduction caused by the decrease in employees. At the same time, an additional deduction, of 20 percent of PAYE increase during the year of assessment in which jobs are created, could be granted to employers.
Job creation will also be stimulated by encouraging new businesses. To this end, the venture capital incentive announced last year by the minister was a bold step, but unfortunately it is not going to provide businesses with the access to funding they require until the low levels of gross asset value that have been set are raised. It would therefore be helpful if this venture capital incentive was expanded.
Changing people’s behaviour is never easy, but our already weak culture of saving might be encouraged if the minister were to dramatically increase the tax-free portion of interest that can be.
While the stimulation of employment and savings should lead in time to increased tax revenues, this will be of little avail if the present misuse of tax funds by government departments continues. Poor controls, leading to unauthorized spending and overpayment for services, must be improved. The Auditor General ought therefore to be given a larger budget so as to perform expanded control tests – with the active participation of private sector audit firms – and to do this more often.
The poor state of education in the country also needs to be addressed. Generally, private schools achieve much better results than state schools, showing clearly that far more resources need to be mobilised if education is to be improved. Many private schools have the capacity to teach more learners. The minister’s bold move last year to increase the deductions allowed for bursaries should therefore be expanded to allow all taxpayers, including employees (who are currently limited in this regard), to treat 20 percent of all school fees they pay (thus not only their children’s fees) as tax deductible. This would apply up to a limit of R5,000 per learner.
A final suggestion is that a new tax amnesty should be announced. The foreign exchange amnesty initiated a few years ago allowed many people to regularise their tax affairs without paying crippling penalties. A subsequent, more limited amnesty for small businesses that had been guilty of local tax evasion or administrative non-compliance was announced a few years later. Perhaps it is now time for a final all-inclusive amnesty to be announced to finally close the chapter on past irregularities.
This amnesty would have to cover all business structures, complex and simple, listed and unlisted, with different levels of penalties being set based on turnover in the year of assessment: for example, turnover up to R50 million, then R200 million, then anything above that.
The rationale for such an amnesty is four fold:
1. With the economy in decline, companies facing large arrears in tax liabilities could face liquidation.
2. The capacity of SARS to perform regular company audits is constrained, so that past infringements are not easily being detected.
3. There are many companies previously involved in aggressive tax planning that would like to close that chapter should the penalty for doing so not be too severe.
4. With tax revenues likely to drop with the decline in the economy, this is a good time to boost revenues with proceeds from the amnesty.
Mr Manuel’s job of balancing the budget this year is not an enviable one, but judging from past achievements he will surely do a fine job come February 11 when he presents the country’s budget to parliament. Perhaps he’ll even incorporate some of the above well-intended advice.
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