2 October 2000


The South African Institute of Chartered Accountants Taxation Committee (SAICA) welcomes the opportunity to raise certain issues flowing from the Revenue Laws Amendment Bill 2000. At the outset it must be placed on record that SAICA was consulted on the legislation by the South African Revenue Service (SARS) and certain of the comments made herein have been communicated to SARS previously on various dates.

1. General observations
Before addressing specific issues relating to the introduction of the residence basis it is appropriate to make certain general comments on the South African tax system.

1.1. Rewrite of the Act
1.1.1. In the Department of Finance Budget Review for 1998 at paragraph 9.3.4 the following was stated:

"Simplification of the Income Tax Act;

In last year’s Budget Review mention was made of the simplification of the Income Tax Act, 1962, to ensure that the tax code is accessible to all citizens while maintaining clarity and certainty in its details. Several other countries are re-writing their tax laws with similar aims.

Advocate E.B.Broomberg has been appointed to undertake this project. Aspects in the law which may be unconstitutional will also be considered and addressed."

1.1.2. The 1999 Budget Review contained no reference to the simplification of the Income Tax Act.

1.1.3. In the 2000 Budget Review at page 73 the following is stated:

"The 1997 Budget Review announced government’s proposal that the Income Tax Act should be simplified to make the tax code accessible to all citizens while maintaining clarity and certainty in its details. Substantial work has been done to reorganise, reorder and restructure the Act to facilitate accessibility and convenience of references.

The far-reaching tax reform proposals set out in this budget, necessitated a review of this process. The new proposals will effect the fundamental principles of the Income Tax Act and will profoundly influence the drafting process. It has, therefor, been decided to suspend the process until the new principles have been incorporated into the Act

1.1.4. The Income Tax Act has undergone substantial amendments in the last few years and has become far more complex. I can refer to the introduction of sections such as section 24J dealing with the taxation of interest, the rules on the taxation of passive income, the taxation of foreign dividends introduced by section 9E and now the move to the residence basis of taxation as well as the impending introduction of capital gains tax.

1.1.5. The Act has therefor become far more complex than what it ever was before and it is hoped that the re-write of the Act will indeed receive attention with a view to making the tax code more accessible to the public at large.

1.2. Levels of service rendered by SARS
1.2.1. There is no doubt that there has been an improvement in the attitude of SARS in its dealing with taxpayers and the public generally. SARS introduced the New Income Tax System (NITS) during December 1999 and this has unfortunately been fraught with many difficulties. Taxpayers and members of SAICA alike have unfortunately been bombarded with paper generated out of that system which has to be checked and processed so that clients can be given correct instructions on their tax affairs. SARS has been notified of many of the problems encountered by SAICA and its members with NITS and they have undertaken to deal with these problems in order to ensure that the service rendered by it to taxpayers is improved. SARS and taxpayers alike are still getting acquainted with the new system. Both parties now face the introduction of the residence basis of taxation and shortly thereafter the introduction of capital gains tax.

1.2.2. The SARS is also undergoing a dramatic transformation process aimed at improving the level of service rendered to taxpayers and the concern that must be expressed is whether SARS has the necessary capacity and expertise to properly implement and enforce the new residence basis legislation and indeed capital gains tax. SARS is currently responsible for the administration of the skills development levy in addition to its traditional role of tax collector for the state. SARS is expected to become responsible for the collection of the unemployment insurance contributions in terms of the proposed Unemployment Insurance Bill.

1.2.3. It is all well and good introducing highly technical legislation but there is no point whatsoever in introducing such legislation in the event that it cannot be properly enforced and policed.

1.2.4. It is submitted therefor that the government should increase the funding of SARS so that SARS can properly equip itself with more personnel to enforce the highly complex provisions that are coming into force in the South African tax system and to properly acquit itself of its enhanced responsibilities.

1.3. Education
1.3.1. The tax system in South Africa has undergone dramatic change in the last few years and this process is ongoing. It is critical therefor that SARS undertakes a comprehensive process of educating both its own personnel and taxpayers alike. The Inland Revenue in the United Kingdom and the Canadian Customs and Revenue Authority have published substantial documentation on the residence basis and how such system operates in those countries. It is submitted that SARS should compile information brochures for use by taxpayers generally and indeed for its own staff.

1.3.2. Taxpayers must be made aware of the intricacies of the amendments to be introduced by the Revenue Laws Amendment Bill so that they are placed in the position to comply with the provisions thereof.

1.3.3. SAICA will do what it can in educating its membership via its publications such as Accountancy SA and IntegriTax but this is only aimed at the SAICA constituency. It is imperative therefor that similar bodies and SARS alike engage in a proper process of educating taxpayers as to the changes made in the tax system and how they are to be dealt with.

1.3.4. The publication of the briefing note by SARS on 15 September 2000 on the residence basis of taxation is to be welcomed and it is hoped that this is the start of a trend that will be followed in the future as and when substantial changes are made in the tax system.

1.3.5. SARS needs to increase its visibility in the public eye-"out of sight, out of mind". When VAT was introduced SARS hosted seminars with the purpose of informing taxpayers about the new tax. It is submitted that SARS should undertake a similar program of educating taxpayers about the residence basis and in due course, the capital gains tax. SARS should also utilise the print media and television for the purposes of educating taxpayers about their fiscal responsibilities in this country. Complex tax law may encourage tax evasion and result in a further decline in tax morality. SARS needs to educate taxpayers on the fundamental changes made in the tax system thereby enabling and encouraging compliance with the fiscal laws of South Africa.

1.4. SARS also needs to review the number of tax forms required to be submitted by small businesses in this country. Ideally SARS should move to a single tax identification number to ease the administrative burden placed on small businesses in complying with their fiscal obligations.

1.5. Amnesty for exchange control and tax?
1.5.1. In 1997 when sections 9C and 9D were introduced to subject foreign investment income derived by South African residents to South African tax SAICA raised the question as to whether or not an amnesty should be considered for exchange control and tax purposes.

1.5.2. It would appear that many South African citizens have transferred funds abroad illegally and it is highly unlikely that such persons who are clearly in breach of the exchange control regulations will declare the income derived therefrom to tax in South Africa.

1.5.3. It is therefor suggested that serious consideration be given to the possibility of granting an amnesty to such persons so that they can legitimise the funds that they have transferred out of South Africa to overseas countries. The purpose of such amnesty would be to legitimise the funds transferred abroad and to facilitate that the income derived from such funds is in fact declared to tax in South Africa in accordance with the Income Tax Act.

1.5.4. An amnesty of such a nature would only work in the event that SARS is in a position to enforce the residence legislation and can ensure that those persons who have transferred funds abroad declare the income derived therefrom to tax in South Africa. This is a more difficult question to address but it is deemed necessary to raise the issue.

1.5.5. SARS is aware of those persons who have transferred funds abroad in accordance with the exchange control concession granted to South African residents to invest overseas. SARS will be entitled to question how such funds have been invested with a view to establishing whether any income has been derived therefrom and whether such income is liable to tax in South Africa.

1.5.6. It is submitted that serious consideration should be given to encourage such citizens to declare the income derived therefrom to tax without fear of prosecution by either SARS or the South African Reserve Bank.

1.6. Taxpayers Charter and levels of service
1.6.1. The Minister of Finance in the 2000 budget review at page 72 stated as follows:

"Better service by SARS

Because taxpayers have the right to expect good service, in 2000/01 SARS will launch a public discussion on a new taxpayer charter that sets out service standards".

1.6.2. SAICA looks forward to participating in the public debate that will follow in regard to the revision of the taxpayer’s charter that contains detailed service levels that taxpayers can expect from SARS. The concern that must be raised in this regard is the delivery of acceptable service levels whilst SARS is being transformed and also whilst SARS is expected to attend to the substantial amendments introduced this year relating to the conversion from the source basis to the residence basis of taxation as well as the impending introduction of capital gains tax in April 2001.

1.6.3. I attach hereto, for the information of the committee, a copy of my presentation to the SARS workshop on objections and appeals which took place on 24 August 2000. My paper dealt with taxpayer’s rights and the need for a charter and an ombudsman in South Africa.

1.7. Specific comments on the Revenue Laws Amendment Bill 2000
1.7.1. Amendment of section 1 of Act 58 of 1962 – definition of resident The Bill refers to, in the case of any natural person, a person who is ordinarily resident in South Africa. The Act unfortunately does not expand on the meaning of the term "ordinarily resident". It is accepted that the courts have issued pronouncements on the meaning of the term "ordinarily resident". In view of the fact that the term "resident" will become critical to the tax system SARS should issue clear guidelines as to exactly what is meant by the term "ordinarily resident". Other countries have sought to do this by way of information brochures or guidelines issued by the respective revenue authority to its taxpayers. SARS is urged to issue some detailed explanation on the meaning it will attach to the term "ordinarily resident". Insofar as persons other than natural persons are concerned reference is made to the phrase "place of effective management". SARS is called upon to supply details of what meaning it will attach to the term "place of effective management". It is accepted that at the end of the day one must have regard to the degree of management in South Africa but SARS is urged to expand upon the meaning of the term "place of effective management".

1.7.2. Section 6quat of Act 58 of 1962 The abovementioned section has now become highly complex by virtue of the various amendments introduced into the tax system and if it is at all possible this section should be reviewed in order to simplify the wording contained therein. The intention to remove the facility of utilising the excess foreign credits against the secondary tax on companies (STC) must be supported. The fact that tax credits may be carried forward for 7 years is supported. The one concern that must be raised is the inconsistency in treatment of foreign dividends contained in section 9E and the interplay of granting of foreign tax credits in accordance with section 6 quat. In certain circumstances a foreign dividend will be liable to taxation in South Africa in the event that a South African resident together with connected persons in relation to such resident holds 10% or more of the shares in the foreign entity. As a result the South African resident will be liable to tax on the foreign dividend in full. Section 6 quat will not, as it is presently drafted, allow such persons the credit for the tax paid in the foreign country in such circumstances. Section 6 quat (1B)(d) should be amended to provide for the situation where a resident together with a connected person owns 10% or more of the equity share capital of the company paying the dividend. As the section is currently drafted the individual residents will not be entitled to a credit by virtue of the fact that the individual holding is less than 10% but the exemption in section 9E(7) will not apply by virtue of their total holding, as connected persons, equates to or exceeds 10%.

1.8. Section 9D of Act 58 of 1962
1.8.1. Section 9D(9) introduces a proviso such that the Minister may by way of general notice in the Gazette treat one or more foreign countries as one to the extent that such foreign countries reflect a single economic market and such treatment will not lead to an unacceptable erosion of the tax base or waive the application of the provisions of the paragraph to the extent that the application will unreasonably prejudice national economic policies or South African international trade and such waiver will not lead to an unacceptable erosion of the tax base. It is submitted that the bill should be amended such that the notices published in the Gazette by the Minister should be contained in the Income Tax Act itself so as to create certainty for taxpayers. It is accepted that in the early stages of moving to the residence basis the provisions contained above may be necessary but they should have a fixed life. Taxpayers are entitled to certainty and should not be reliant upon decisions to be made by the Minister and published in the Gazette. It would be far preferable if the provisions were clarified and contained in the Act itself without the need for the Minister to intervene and grant concessions as and when necessary.

1.8.2. The Commissioner is also entitled by way of general notice to be published in the Gazette to waive the application of section 9D(9)(b)(ii) of the Bill in certain cases. Once again the discretion granted to the Commissioner should have a fixed life and should not be open ended as is currently the position.

1.8.3. The notices to be published should be incorporated into the Act itself within a specified period as is the case with the regulations to be published for public benefit organisations under section 30 of the Act. This will ensure parliamentary oversight of the notices issued by the Minister or Commissioner, as the case may be.

1.9. Section 10(1)(c)(iii)
1.9.1. The above-mentioned section used to grant an exemption in respect of salaries and emoluments payable to any person who holds office in the Republic of South Africa as an official of any government other than the government of South Africa so long as such person is stationed in the Republic for that purpose and was not ordinarily resident in the Republic. The proposal has been made to remove the reference to "ordinarily resident" in South Africa and it is submitted that this is incorrect. In accordance with the Article 34 of the Vienna Convention on Diplomatic Relations of 1961 "a diplomatic agent shall be exempt from all dues and taxes personal or real, national or regional or municipal". South Africa is a signatory to the Vienna Convention and in terms of the Constitution Act, Act 108 of 1996, as amended South Africa is bound to comply therewith.

1.9.2. It is accordingly submitted that the reference to ordinarily resident in the section should be retained so as to specifically exclude diplomatic personnel, excluding their domestic or private servants, from becoming liable to tax in South Africa on salaries and emoluments paid to them by their governments. It is more than likely that diplomatic personnel stationed in South Africa will comply with the time test contained in the definition of resident and it is for this reason that the section should, in our view, continue to refer to ordinarily resident.

1.10. Section 10(1)(gC) of Act 58 of 1962
1.10.1. The decision to exempt from tax any amount received under the social security system of another country must be supported. SARS is requested to expand upon the meaning of the phrase "social security system of any other country".

1.10.2. The decision to defer the decision to tax foreign pensions at this stage must be supported.

1.10.3. SARS and indeed government is urged to bring finality on the taxation of the pension fund industry as a whole. The tax on retirement funds was introduced in 1996 as an interim measure pending finalisation of the taxation rules of pension funds themselves as well as amounts paid out by such funds to taxpayers. It is appropriate therefor that the tax decision on foreign pensions be deferred pending finalisation of the domestic pension fund industry.

1.10.4. In finalising legislation dealing with the taxation of foreign pensions SARS will have to have regard to the following:

- rules dealing with the deductibility of pension contributions which may have been made by South African residents to non-resident pension funds which deductions would not have been granted in South Africa in the past.

- the taxation of lump sums received from foreign pension funds.

- taxation of foreign pensions and annuities received from foreign pension funds and related matters.

1.11. Section 10(1)(o) of Act 58 of 1962
1.11.1. It may happen that persons are employed by a South African employer and will be remunerated by such employer for extended periods of services rendered outside of South Africa. In the first few months of the tax year it may be unclear whether or not such person will in fact be outside of South Africa for 183 days or more during the relevant year of assessment. As and when the remuneration is paid to the individual tax (ie. PAYE) will, under current law, be required to be deducted by the employer. SARS needs to issue guidelines to employers so that they may deal with the concession granted in a practical manner. Will employers be entitled to stop deducting tax once the person has been outside of South Africa for the required continuous period of 183 days and refund the tax deducted in the earlier months? The explanatory memorandum on the Bill does not deal with the practical application of the exemption granted and SARS is urged to deal with this in due course.

1.11.2. Section 10(1)(o)(i) refers to "183 days in aggregate" whereas section 10(1)(o)(ii) refers to "a continuous period of 183 days or longer". It is submitted that the two sections should be consistent. The second mentioned subsection should also apply in the event that the person is outside of South Africa exceeding 183 days in aggregate.

1.12. Section 11(o) of Act 58 of 1962
It is submitted that this section should also provide for the scrapping of pipelines referred to in section 12D. The section was specifically amended to cater for transmission lines, cables or railway lines but unfortunately it does not refer to pipelines. Section 12D was specifically inserted to cater for deductions available on pipelines used for the transportation of natural oil. It is accordingly submitted that section 11(o) should be amended to be consistent with the provisions of section 12D of the Act.

1.13. Section 103 of Act 58 of 1962
Section 103(3) needs to be amended to take account of the move to the residence basis of taxation. That subsection refers to persons who are ordinarily resident or carrying on business in South Africa or any company registered or carrying on business in South Africa. The wording contained therein therefor needs to be brought into line with the definition of resident as contained in section 1 of the Bill.

1.14. Amendment of section 1 of Act 45 of 1955
1.14.1. The decision to define a spouse for the purposes of the Estate Duty Act 1955 must be supported in that it will now conform with the provisions of the Constitution Act 108 of 1996, as amended.

1.14.2. That definition gives recognition to the fact that the deceased may have been a partner in a permanent same-sex life partnership.

1.14.3. In light of this amendment it is submitted that the provisions dealing with donations tax contained in the Income Tax Act of 1962 requires to be amended. The Income Tax Act specifically exempts donations made by one spouse to or for the benefit of another (section 56(1)(b) of the Act refers). The provisions contained in section 56 and indeed section 57A need to be reviewed in light of the amendments introduced to the Estate Duty Act to ensure conformity with the provisions contained in the Constitution Act.

1.14.4. In addition, we believe the Act should be amended to include a "heterosexual life partnership". The Constitution prohibits discrimination on the ground of marital status, at section 9(3) thereof. The fiscal statutes should, in our view, be amended to deal with "heterosexual permanent relationships" on the same basis as "permanent same-sex life partnerships".

1.14.5. It is submitted therefor that the definition of spouse to be introduced in the Estate Duty Act should similarly be introduced into the Income Tax Act taking account of the further points raised above.

1.15. Issues not dealt with in the residence legislation
1.15.1. Intermediate foreign holding companies It is submitted that it is insufficient to only extend the exemption for foreign active income to the actual operating entities generating such active income. It is submitted that the intermediate holding companies responsible for cash management and other group management functions should also be included in the exemption afforded to its bona fide active trading subsidiaries. It is for this reason that the UK has a holding company exemption from its controlled foreign company rules. The absence of such exemptions means that the effective commercial functioning of the intermediate company will be impaired by SA tax considerations. The need for, and use of, intermediate holding companies is a commercial reality for a variety of non-tax reasons. It is therefore submitted that such intermediate companies should qualify for the foreign income exemption in respect of the active and passive income received from bona fide active trading subsidiaries that themselves satisfy the conditions for exemption.

1.16. International headquarter companies
1.16.1. In the absence of any specific exemptions for international holding companies of foreign multinationals, the residence-based system of taxation eliminates South Africa’s opportunity for attracting foreign investment by acting as regional headquarters.

1.16.2. Many countries have in the past recognised this, and have introduced, with various degrees of success, a special regime for international holding companies. It is suggested that a special regime be considered to incentivise foreign multinationals to use South Africa as their regional headquarters for investment into sub-Saharan Africa and the SADC countries. This could include exemptions from tax on foreign dividends, foreign capital gains, and so forth.

1.16.3. This precise point was also discussed and recommended by the Katz Commission in 1997 and repeated in our previous submissions to SARS dealing with the taxation of foreign dividends. Moreover, such a regime would not only make commercial sense but would also follow international trends.

1.17. Tax sparing
1.17.1. The currently proposed tax rules will neutralise the incentives offered to South African companies by developing nations - especially in Africa - seeking to establish infrastructure. The result will be that South African investors will simply turn to investment opportunities in the developed economies, so whilst there will be no increase in tax collection for the South African fisc, the infrastructure projects in developing countries (where some of the risk is compensated for by tax incentives) will be abandoned in favour of developed nations where there is taxation at the local level, but less business risk.

1.17.2. It is submitted that it cannot be the intention of the tax authorities that the foreign dividends and residence basis of taxation should act as a stumbling block to the participation of South Africa in the African Renaissance, and transfer tax revenues from developing countries to the more developed South Africa. The solution is a very simple one, a unilateral tax sparing provision in the South African domestic legislation. This is preferred to bilateral agreements in tax treaties since domestic laws can be developed and amended more expediently than tax treaties, and is less prone to manipulation and affords the SARS greater levels of control over their application or denial. Our concerns in this regard may be alleviated by the notices to be issued by the Minister in terms of section 9D(9)(b)(ii) of the Bill.

1.18. Monetary limits in fiscal legislation
Last year at this forum I tabled a summary of the monetary limits contained in the Income Tax and VAT Acts. I am attaching hereto updated schedules taking account of the recent amendments introduced to the Tax and VAT Acts. The recent increase in the threshold for registration under the VAT Act must be supported. SARS is however urged to review the limits contained in the VAT Act pertaining to the issue of abridged and other tax invoices. The limits imposed on the deduction of retirement annuity contributions, pension fund contributions and the exempt amounts of lump sums received from pension funds need to be reviewed. As stated earlier the whole question of the taxation of the pension fund industry in South Africa must be brought to finality so that taxpayers have certainty in this regard.

1.19. Conclusion
1.19.1. SAICA would like to express its appreciation to the Committee for affording it the opportunity of raising the above-mentioned issues in this forum.

1.19.2. The SAICA tax committee would also like to place on record that SARS affords SAICA the opportunity to comment upon the draft legislation and that many of the comments made by SAICA have been taken into account in finalising the drafting of the Revenue Laws Amendment Bill. It is hoped though that the points identified above will receive consideration in amendments to be introduced in the short term.

B J Croome
The South African Institute of Chartered Accountants


24 AUGUST 2000

1. As a result of the introduction of the Interim Constitution taxpayers obtained rights that they did not have vis a vis The Commissioner : South African Revenue Service (SARS) in the past. The Interim Constitution introduced rights to privacy, administrative justice etc. which were not available to taxpayers in the past.

2. The Constitution Act, Act 108 of 1996 as amended is now the supreme law of South Africa and the Income Tax Act and indeed other fiscal status are subject to the provisions contained in the Constitution Act.

3. The Administrative Justice Act was promulgated in February 2000 and once it comes into force it will slot in between the Constitution Act and the Income Tax Act.

4. The hierarchy of statutes in South Africa is therefore the Constitution as the supreme law of South Africa. The Income Tax Act must comply with its provisions as well as the provisions of the Administrative Justice Act.

5. In this year the SARS was established in terms of the SARS Act which took effect on 1 October 1997. During this year also the Client Charter was released by the Minister in the 1997 Budget Review. The Client Charter contains a brief outline of taxpayers rights and obligations but unfortunately contains no effective remedy.

6. The Client Charter is merely a statement of intent and has not been enshrined in any fiscal statute and does not, at this stage, have any effective remedy.

7. The 2000 budget review at Page 72 stated the following:
Because taxpayers have the right to expect good service, in 2000/01 SARS will launch a public discussion on a new Taxpayer Charter that sets out service standards"

8. The Minister of Finance has therefore indicated that it is appropriate to review the Client Charter and to establish service levels that taxpayers can expect from SARS.

9. In this regard it is appropriate to refer to a number of overseas countries that have issued Taxpayers Charters.

10. The Australian Charter contains reference to the rights that taxpayers have under the law as well as the service and other standards that can be expected from the Australian Tax Office (ATO). The Charter also contains details as to what the taxpayer can do in the event that they are dissatisfied with the Australian Tax Office’s decisions. The Charter also refers to the taxpayers important tax obligations.

11. The Charter contains, inter alia, the following levels of service that can be expected from the ATO :
"We will process paper returns within a maximum of 56 days of receipt.
We will issue your refund within 28 days of receiving all necessary information.
We will give you a decision on your objection or amendment request within 56 days of receiving all necessary information from you.
We will give you a ruling or a decision on your objection against the ruling within 28 days of receiving all necessary information from you.
If you phone our general enquiry services we will answer your call within 2 minutes.
If you visit our enquiry services we will attend to you within 10 minutes of your arrival in a tax office".

12. The Charter also provides that in the event that a taxpayer is subjected to an audit notification of the outcome must be made to the taxpayer within 7 days.

13. It is also a requirement that a report must be lodged to the Federal Parliament on how the Charter is operating and make the information available to the public.

14. Canada published a Declaration of Taxpayers Rights in 1985. That country asserts that it was the first country to publish a Declaration of Taxpayers Rights. The Declaration consolidates certain rights found in the Canadian Charter of Rights and Freedoms, in statutes and in common law.

15. During February 1999 revenue in Canada published its 7 Point Plan for Fairness which seeks to identify those areas where it believes service levels should be improved to meet the demands of taxpayers. Revenue in Canada has indicated that it will develop a comprehensive guide on the rights of taxpayers as well as the levels of service to be provided to the taxpayers.

16. New Zealand is currently reviewing its Taxpayers Charter. The current Charter refers to both taxpayers rights and obligations. It is the intention of Inland Revenue in New Zealand that the new Charter will also deal with service levels.

17. The United Kingdom Inland Revenue published a Taxpayers Charter for the first time sometime ago. It is the intention to review the Charter on an annual basis. The Charter refers to both the taxpayers legal rights and duties.

18. The Taxpayers Charter also contains references to specific standards of service that can be expected by United Kingdom taxpayers. Examples are as follows:
"If you telephone us, we aim to:
- answer within 30 seconds (ten rings) at the switchboard
- connect you to the right extension first time (unless your call has gone direct).
- if you visit our Inland Revenue enquiry centres, we aim to see you within 15 minutes of arrival if you have not previously made an appointment.
- if you write to our tax offices, we aim to respond to every question or issue you have raised within 28 calendar days. Where this is not possible, we will tell you why and when you can expect a full reply;
in addition we aim to:
- get every aspect of your affairs right first time by making full and correct use of the information available to us.
- deal with your repayment claim sent to our specialist repayment offices, within 28 calendar days".

19. The Taxpayer Bill of Rights was codified into the Internal Revenue Code and the Internal Revenue Service has issued a Declaration of Taxpayer Rights. The United States Declaration is fairly general on taxpayers rights and does not contain specific levels of service that can be expected by taxpayers. It also emphasises that taxpayers are only required to pay the correct amount of tax due under the law - no more and no less.

It is my opinion that the time has come to review and update the current SARS Client Charter and to publicise the document far more widely than in the past.

20. The difficulty that I have with the current Client Charter is that it does not contain any effective remedy for taxpayers who have administrative difficulties in their dealings with SARS. Under the provisions of the Constitution citizens may complain to the Public Protector or the Human Rights Commission but it is submitted that these fora are not appropriate for resolving disputes with SARS that are of an administrative nature. Once again it is appropriate to refer to the overseas experience.

21. Taxpayers in Australia can lodge complaints with the Commonwealth Ombudsman as well as the office of Special Tax Advisor located in the Commonwealth Ombudsman’s office. This office deals with taxpayers administrative complaints against the ATO.

22. The United Kingdom appointed an Adjudicator to deal with complaints against Inland Revenue. The Adjudicator is independent and must hear both sides of the dispute and it makes recommendations on resolution of the administrative problems.

23. The purpose of the Adjudicator is not to intervene on tax appeals but only problems of an administrative nature.

24. A taxpayer can also complain to their Member of Parliament in order to involve the Parliamentary Ombudsman in administrative disputes with Inland Revenue.

25. The office of Taxpayer Advocate was created under the Taxpayer Bill of Rights Act to deal with complaints of an administrative nature.

The declaration of taxpayers rights states as follows:
"help with unresolved tax problems. The National Taxpayer Advocate’s Problem Resolution Programme can help you if you have tried unsuccessfully to resolve a problem with the IRS. Your local Taxpayer Advocate can offer you special help if you have a significant hardship as a result of a tax problem"

26. The Taxpayer Advocate is obliged to report to congress on a regular basis and to identify the twenty most common reasons for disputes with the Internal Revenue Service and to suggest how to address these. The National Taxpayers Advocate annual report for 1998 contains the following comments:
"the report details action taken by the Taxpayer Advocates’ office to resolve taxpayers’ problems and identifies areas of tax laws that impose significant compliance burdens. It also contains a list of the twenty most serious problems encountered by taxpayers from the point of view of individuals, practitioners and the Internal Revenue Service. Topping the list of individuals and small businesses:
- complexity of the tax laws;
- fairness of treatment to taxpayers;
- listening to taxpayer concerns;
- length of IRS processes;
- explanation of IRS processes;
- consideration by IRS of the information presented by taxpayers;
- IRS explanations of taxpayer rights;
- amount of time spent on an issue;
- attitude of the IRS;
- lack of responsiveness by the IRS."

Problems identified in the Unites States are therefore not dissimilar to those in South Africa.

27. From a review of "Taxpayers’ Rights and Obligations : A survey of the Legal Situation in OECD Countries (published in 1990) it would appear that fourteen countries have an ombudsman to deal with tax disputes. The ombudsman in these countries are either dedicated to the resolution of tax disputes or general ombudsman to deal with complaints of an administrative nature in general. Seven OECD Countries do not currently have an ombudsman to deal with tax disputes.

28. The Katz Commission in its third report considered proposals for a tax ombudsman in South Africa along the lines of the United Kingdom Adjudicator. The report was considered by the Joint Standing Committee of Finance (JSCOF) and at Page 31 of its report the following is stated:

"Recommendations of JSCOF:
the JSCOF supports the recommendation of encoding a Public Statement of Taxpayers’ Rights, and what should be contained therein. However we recommend that:

- they should clearly set out taxpayers’ obligations and duties and the title should change accordingly.

- it should also include rights as to indirect taxes;

- as the SARS is being established within a culture of service to taxpayers, such a statement need not be legislated at present; but that effectiveness be regularly monitored including to the specialised unit envisaged below;...
While accepting the principle contained therein, the recommendation to appoint a separate Tax Ombud is not supported at this stage. The JSCOF expressed concern at the proliferation of such oversight bodies. Further consideration of alternatives is needed, including the possibility that the Public Protectors’ Office establish a specialised, skilled Tax Unit to achieve this purpose"

29. The South African Institute of Chartered Accountants made a submission on the Taxpayers’ Charter and the need for a Tax Ombudsman in South Africa. That submission appeared in 1997 Taxplanning 11 and called for an independent tax ombudsman.

30. It is submitted that SARS needs an effective means of resolving taxpayers complaints regarding poor service - an ombudsman is but one way of dealing with this.

31. It is also essential to educate both taxpayers and SARS staff on the provisions of the Client Charter and particularly in respect of taxpayers’ rights and obligations.

32. SARS should also publish booklets and guides on taxpayers’ rights and codes of practice on, for example, audits and taxpayers rights in such particular cases. Many of the overseas tax authorities publish booklets and guides for taxpayers use on a regular basis dealing with such matters.

33. It is submitted that serious consideration should be given to the formation of a Tax Ombudsman, either as a separate office, or within the Public Protectors’ Office for the purpose of dealing with taxpayers administrative difficulties and lack of service encountered in their dealings with SARS.