South African Institute of Chartered Accountants (SAICA)
SECOND REVENUE LAWS AMENDMENT BILL, 2001
(1) 3 August 2001 Friday, 17 August 2001
(2) 20 August 2001 Wednesday, 29 August 2001
Foreign currency 24 August 2001 Friday, 31 August 2001
(3) 4 September 2001 Monday, 17 September 2001
(4) 7 September 2001 Friday, 21 September 2001
(5) 10 September 2001 Monday, 24 September 2001
(6) 13 September 2001 Monday, 24 September 2001
(7) 19 September 2001 Monday, 1 October 2001
Corporate rules 20 September 2001 Monday, 1 October 2001
(draft proposal) 09:37 12:00
(8) 25 September 2001 Thursday, 4 October 2001
(9) 1 October 2001 Monday, 8 October 2001
(10) 4 October 2001 Monday, 8 October 2001 *
16:24 extension given
Second RLAB & 10 October 2001 Thursday, 11 October 2001
Explan. Memo. 13:43 (PCF deadline)
As has been pointed out to this Honourable Committee previously the Commissioner allows a reasonable time to comment in respect of the earlier batches and as the deadline in finalising the amendments approaches so the time to comment reduces. This is apparent when one reviews the date on which comments were required in respect of batches 8, 9 and 10.
The secretary of this Honourable Committee requested that SAICA submit written comment by no later than Thursday, 11th October 2001.
We wish to place on record a concern on the extreme deadline placed upon us to submit proper and written comment to this Honourable Committee on legislation comprising 233 pages.
As is noted above SAICA only received the composite version of the Second Revenue Laws Amendment Bill on 10th October 2001 at 13h43. It was therefor not possible for SAICA to submit written comment to this Honourable Committee in the deadline imposed upon us. It is for this reason that this written submission is being forwarded to you after the deadline imposed of 11th October 2001 and we express our apology therefor.
The further difficulties that must be noted is that certain sections were contained in the draft legislation made available to us which have now been removed from the composite Bill presented to us for comment. Furthermore, certain new sections have been inserted in the Revenue Laws Amendment Bill which sections have not been seen by us before. It becomes very difficult to comment properly on a Bill of 233 pages where one is unable to readily ascertain which sections are new and which sections have been amended from those previously seen by us.
SARS is also urged to briefly state their objectives with regard to each draft piece of legislation in order to enable the commentators on the legislation to meaningfully contribute to the debate thereon. It is extremely difficult to comment upon complex legislation within the extremely tight deadlines imposed upon us, not knowing the intention of the Commissioner with regard to such amendments.
Comments by SAICA’S Taxation Committee:
MARKETABLE SECURITIES TAX ACT, ACT 32 OF 19481.
Section 11A1.1 Section 11A refers to rules that are required to be promulgated in accordance with Part (iii) of Chapter (iii) relating to objections and appeals. The Commissioner previously made available to us the draft regulations that will regulate the objection and appeal procedure and it is unfortunate in our view that such regulations are not contained in the legislation now made available to this Honourable Committee.
1.2 It is accepted that under the amendments proposed the Minister shall have the authority to publish the regulations in accordance with Part (iii) of Chapter (iii). However, it is submitted that the draft regulations should form part of the legislation considered by this Honourable Committee as it is in our view an integral part thereof.
ESTATE DUTY ACT, ACT 45 OF 19552.
Section 25A The amendment as proposed contains reference to a date on which the section shall come into operation but does not unfortunately specify the date in question. It is hoped that the date will be prospective as opposed to retrospective.
INCOME TAX ACT, ACT 58 OF 19623.
Section 1 – "Foreign equity instrument"Paragraph (a) of the proposed definition refers to a "recognised exchange". This term is defined in paragraph 1 of the Eighth Schedule of Act 58 of 1962, and should reference therefor not be made thereto? Paragraph (b) refers to a "collective investment scheme" as well as a "similar equity investment". It does not appear that the term "collective investment scheme" is defined in the Act and it is suggested that consideration be given to defining the term so that there can be certainty as to what is envisaged by the wording proposed in this amendment.
4. Section 4 – Preservation of secrecy
4.1 Currently the Commissioner is not permitted to disclose details relating to a class or classes of taxpayers to any person and the amendment to provide that the Commissioner may be allowed to make disclosure of certain limited information to the National Treasury, is understood. Clearly the officers of the National Treasury will be required to obtain information in order to review tax policy and revenue estimation. It is important that any officers of the National Treasury who obtain information are then regulated under the provisions contained in section 4. The further question that must be raised in this regard is whether or not it is appropriate that the officers of the National Treasury that receive information under the provisions of the Income Tax Act of 1962, as amended, should not also be bound by the provisions of section 4 and be required to take the oath of secrecy as is expected of Revenue officials?
4.2 It is proposed that section 4 be amended such that the Commissioner can disclose information to the National Commissioner of the South African Police Service or the National Director of Public Prosecution.
4.3 On the one hand the citizens of South Africa have a right to privacy contained in section 14 of the Constitution of the Republic of South Africa, Act 108 of 1996, as amended. On the other hand it is necessary to introduce measures that will facilitate the combating of crime in the country. There is thus a tension between the preservation of privacy on the one hand and the campaign to reduce criminal activity in South Africa. The proposed legislation contains two options setting out the procedures to be followed in the event that disclosure is to be made by the Commissioner to the South African Police Service or the National Director of Public Prosecution.
4.4 In the initial draft made available to us it was proposed that the Commissioner would himself personally decide when information should be made available to one or more of the other State organisations. In our comments on that proposal we urged that the legislation be revised such that the judiciary be involved in the matter to determine whether or not the information should indeed be made available to the South African Police Service or the National Director of Public Prosecutions. Section 74D of the Income Tax Act of 1962, as amended, regulates the manner in which the Commissioner is to obtain a search and seizure warrant from the judiciary in the event that the Commissioner wishes to conduct a so-called search and seizure operation against a taxpayer that has not complied with their obligations imposed under the provisions of the Act.
4.5 The amendment as proposed provides that the information shall be made available only in terms of an order issued by a Judge in chambers or alternatively on approval by a panel of persons appointed by the Minister of Finance.
4.6 It is submitted that it is preferable that the judiciary be involved in the matter so as to ensure independence in the matter, that such independence is able to be enforced and more importantly, that the public will have the perception that independence is sacrosanct. As pointed out above, section 74D already prescribes the procedure to be followed in the event that the Commissioner wishes to obtain a search and seizure warrant. The courts therefor have become involved in fiscal matters and have the necessary expertise to properly adjudicate such matters. We do not believe that it is necessary or appropriate to create yet another panel at taxpayers’ expense to determine whether or not the information should be made available to the two other State organisations. The judiciary in our view is well qualified to adjudicate the matters under consideration and it is for this reason that we do not support Option 2 contained in the draft Bill.
4.7 The one concern that must be raised in relation to this amendment is that the Commissioner may receive an affidavit from a person alleging that another person has violated the provisions of the Income Tax Act and has also conducted certain criminal activity. On the face of it such accusations may appear plausible and of substance. In the event that the Commissioner proceeds to disclose the information to the South African Police Service or the National Director of Public Prosecutions and it is later discovered that the information presented was malicious and the taxpayer’s reputation is irreparably damaged as a result thereof, what recourse will the taxpayer have against the Commissioner or indeed the person making such malicious affidavit? It is submitted that the Commissioner may become liable to damages in the event that information is inadvertently disclosed that is of a malicious nature.5. Section 9E – Taxation of foreign dividends
The amendments refer to paragraph (c) after paragraph (d). It is submitted that paragraph (c) should in fact read paragraph (e).
6. Section 9G – Taxable income in respect of foreign equity instruments
6.1 The proposed section seeks to regulate the taxation of "foreign equity instrument", as defined in section 1, which constitutes trading stock. The difficulty that we foresee with this provision is the manner in which taxpayers will be required to determine whether or not the "foreign equity instrument" is held as trading stock or not. Unfortunately the Act does not contain any objective criteria to assist in determining whether an item is held as trading stock or not. It is therefor likely that disputes will arise between the Commissioner: SARS and taxpayers in determining whether or not the particular foreign equity instrument was held as trading stock or as a capital asset.
6.2 The review that the National Treasury undertook to complete in relation to the distinction between capital and revenue thus becomes more important. It hoped that the National Treasury will shortly publish its findings and recommendations so as to assist taxpayers in the criteria to be relied upon in distinguishing whether an asset is held on revenue account or as a capital asset.
7. Section 18A – Deduction of donations to certain public benefit organisations
7.1 It is stated in the Bill that the amendments shall come into operation on 15th July 2001 whereas the Explanatory Memorandum provides that the amendments shall take effect on 19th July 2001. This anomaly requires to be clarified.
7.2 The amendment proposes inserting the word "solely" and it must be questioned whether or not this insertion will achieve the desired intention of the legislature. In the event that an organisation has been approved by the Commissioner as a public benefit organisation in accordance with the provisions of section 30 and conducts a number of different activities that comply with that section, and at the same time conducts one or more activities that have been recognised under section 18A, will deductions made to such public benefit organisation qualify for deduction or not? It would appear the amendment as proposed requires the public benefit organisation to conduct only those activities that have been approved under section 18A and not any other activities that might have been approved under section 30 of the Act. Is this the legislatures intention insofar as non-governmental organisations/public benefit organisations are concerned? Does the Commissioner wish the public benefit organisation that is seeking section 18A recognition to conduct the public benefit activities recognised under that section in a separate entity vis-à-vis any other activities that may be conducted?
8. Section 24I – Gains or losses on foreign exchange transactions
8.1 It is submitted that the amendment should provide that the word "or" contained at the end of paragraph (c) of the definition of "exchange item" be deleted and that it be inserted at the end of paragraph (d) of the definition of "exchange item".
8.2 It is proposed that subsection (2) be amended and that it in future applies to :
"(a) Any company;(b) Any trust carrying on any trade; or(c) Any natural person who holds any exchange item as trading stock,"
8.3 Should paragraph (c) not rather be reworded to provide that it applies to any natural person who holds any exchange item by virtue of any trade carried on by them? It is submitted that the current wording is too restrictive in that the exchange item may arise out of the disposal of trading stock but not itself be held as trading stock.
8.4 When one has regard to the insertion of the new subsection (9) it would appear that the above clarification is necessary. Subsection (9) provides that in the event that where any exchange item is held other than in the course of trade of a person specified in subsection (2), it shall be deemed to have been acquired by the respective person on 1 October 2001 at the ruling exchange rate on that date. It is submitted therefor that the wording contained in subsection (2) should be brought more into line with that contained in subsection (9) particularly insofar as natural persons are concerned.
8.5 It is submitted that natural persons conducting business should be treated no differently to companies or trusts that are trading. It is for this reason that we believe that the wording contained in section 24I insofar as natural persons are concerned should be revisited. It is important that natural persons, companies and other entities are treated equally insofar as the tax consequences of foreign exchange gains and losses are concerned. We do not believe that the current wording proposed in section 24I gives effect to such equal treatment.
9. Proposed amendments relating to structured finance transactions
We are unable to comment on these amendments as we have not been afforded the opportunity to comment thereon.
10. Insertion of Part (iii) in Chapter (ii) – Special rules relating to corporate formations, share for share transactions, inter-group transfers, unbundling transactions and liquidation rules
The decision to incorporate the abovementioned rules into the principal Act must be supported. This means the statutory provisions will be readily available and not contained in an ancillary piece of legislation as was the case with the erstwhile provisions dealing with rationalisations and unbundlings of companies contained in section 60 of the Income Tax Act, No.113 of 1993 and section 39 of the Taxation Laws Amendment Act, Act 20 of 1994.
11. Section 41 – Definitions
It is noted that the section contains a definition of "share" and it is questioned whether or not it would be more appropriate that such definition be contained in section 1 of the Act. This is of particular relevance to the new definition inserted into section 1 in respect of "foreign equity instrument".
12. Section 42 – Corporate formations
12.1 Subsection (2)(a)(i) refers to "a receipt equal to the base cost of that capital asset". Would it not be preferable instead to refer to "an amount equal to the base cost of that capital asset" or alternatively "for proceeds equal to the base cost of that capital asset"?
12.2 It is submitted that the use of the word "amounts" instead of "receipt" is preferable when one has regard to the wording contained in subsection (4)(a)(i) which also refers to "an amount".
12.3 In the event that a natural person conducts a trading operation as a sole proprietor and wishes to dispose of such business to a company it does not appear that the rules deal with the question of claims to be made by the new company in respect of bad debts or allowances available in respect of doubtful debts. In order to claim a debt as bad it is necessary that the taxpayer, that is the new company, previously included the amount of the debt in its income in a previous year of assessment. The corporate formation rules do not appear to address this problem and it is accordingly submitted that the corporate formation rules should be expanded upon to specifically provide that the new company, or rather purchaser of the business covered by the corporate formation rules, be allowed to claim bad debts in accordance with section 11(i) of the Act despite the fact that the income relating to such debts was not previously included in its income. It is submitted that a similar provision is required to address the question of doubtful debts and indeed any other allowance that was previously available to the seller of the business. In the initial version of the corporate formation rules made available to us, the section contained sub-section (7) which provided as follows :-
"Where any asset transferred by a person to the company, as contemplated in subsection (2), constitutes a debt due to that person –
(a) that company may deduct any allowance or deduction in respect of any such debt that has become doubtful or bad, which that person would have been entitled to deduct in respect of that debt, had that debt not been disposed of by that person to that company; and
(b) any allowance in respect of that debt, which was allowed as a deduction during any year or years of assessment in determining the taxable income of that person in terms of the Income Tax Act, 1962, must, for the purpose of the recoupment of any such allowance in terms of the Income Tax Act, 1962, be deemed to have been allowed as a deduction of that company during that year or years of assessment."
12.4 It is unclear why the abovementioned provisions have been removed from the Corporate Formation Rules and it is submitted that such provisions are necessary to give effect to the intention of the legislature insofar as corporate formations are concerned.
12.5 It is also submitted that the Corporate Formation Rules should provide that where any other tax allowance available under section 24C or section 24 has been utilised, that such allowance will not be regarded as having been recouped or recovered in the hands of the person selling the assets in question and that the new company will be liable to tax on the reversal of such allowances in the subsequent year of assessment.
12.6 The sale of a business for shares and a loan account does not appear to fall within the proposed provisions. Should the proposed rules not deal with this situation also?
12.7 We note the following seem to be incorrect references (it appears as if section 42 originally had 42(3) as the enabling section, not section 42(2), whereas section 42(3) is now the anti-avoidance of previous capital losses with the acquiring company provision.
12.8 Section 42(6) should refer to the company contemplated in sub-section (2) and not sub-section (3).
12.9 Paragraph 42(7) should refer to sub-section "(2) or (4)" and not "sub-section (3) or (5)". Paragraph 42(11)(b) should refer to sub-section (2) and not sub-section (3) as debts are presumably capital assets – but only sub-section (4) refers to going concern transfers, whereas sub-section (2) does not.
13. Section 43 – Share for share transactions
13.1 The Explanatory Memorandum on the Bill at page 10 in the fourth line of the first full paragraph refers to the following :-
"Be treated as having acquired those shares at a cost equal to the market value of those shares;"
The word "share" should clearly read "shares".
13.2 In the fourth paragraph of the Explanatory Memorandum on page 10 it is suggested that the wording be amended along the following lines :
"Provisions similar to those contained in respect of corporate formation transactions apply in respect of a share-for-share transaction, where -"
13.3 In the last paragraph of the Explanatory Memorandum at page 10 the word "do" should read "does". Sub-paragraph (i) of section 43(1)(a) requires that the offer be accepted within the period of 30 days before or after the share-for-share transaction. It must be questioned whether 30 days is a reasonable period.
13.4 Section 43(2)(a)(i) refers once again to a "receipt". Should this not rather refer to "an amount"?
13.5 Section 43(3)(a)(i) in fact itself refers to "an amount" as opposed to "receipt". It is submitted that consistency of language is to be preferred.
13.6 Section 43(5)(a)(i) states as follows :
"In the case of the share actually disposed of by that person …"
Should the word "share" not read "shares"?
13.7 It is believed that Section 43(b) should start "that person acquires" (not "holds") as it is the corresponding receipt to the "disposal" in Section 43(1). Section 43(5)(b) at the end – there is no prior sub-section (i)(bb).
13.8 Section 43(6) in the second last line before sub-paragraph (a) also refers to "share". Should that not also refer to "shares"?
13.9 Section 43(7) refers to paragraph 39 and it is submitted that that reference should be expanded upon by including reference to the Eighth Schedule of the Act.
14. Section 44 – Transfers between group companies
14.1 The decision to introduce this provision must be supported. The South African Institute of Chartered Accountants has been requesting for a number of years that the rationalisation provisions previously contained in section 39 of the Taxation Laws Amendment Act, 20 of 1994 be extended to all companies in South Africa and that it not be restricted to only listed companies or those companies with a capital base in excess of R75 million. The decision to make the concession available to all groups as defined in this section is to be welcomed.
14.2 It is submitted that the section is in need of provisions dealing with the deductibility of bad debts in accordance with section 11(i) of the Act and doubtful debts provided for in section 11(j) of the Act. In this regard attention is drawn to the comments made above in respect of corporate formations, that is, section 42 of the Act.
14.3 Furthermore, allowances previously available to the transferor in accordance with section 24 or section 24(C), for example, should be subject to recovery in the hands of the transferee company thereby ensuring that larger business operations will qualify for the relief available under section 44. Section 39 of the Taxation Laws Amendment Act, Act 20 of 1994 specifically treated the transferor and transferee company as one and the same insofar as tax allowances were concerned. The deficiency identified in section 44 is that it does not contain a similar provision.
14.4 Section 44(5) once again refers to "a receipt equal to the market value" and it is suggested that this be amended to refer to "an amount".
15. Section 45 – Unbundling transactions
15.1 The definition of "distributable shares" requires that the shares are in a company that is itself a resident. It is unclear why this is a requirement of the section. In the budget speech presented to the National Assembly by the Minister of Finance during February 2001 concern was expressed that non-residents were benefiting unduly from unbundling transactions approved under section 60 of the Income Tax Act, Act 113 of 1993. Where, for example, a South African company owns shares in a non-resident company why should it not be permitted to distribute such shares directly to its shareholders? The current definition of "distributable shares" would not appear to allow such transactions from falling within the ambit of section 45.
15.2 The second proviso to the definition of "distributable shares" requires that the shares were acquired by the unbundling company during the period of 18 months before the date of the unbundling transaction in question. It is submitted that this is too restrictive and should be amended to provide that in the event that a company acquired shares as a result of the unbundling of another company in accordance with section 60 of Act 113 of 1993 it should still be taken into account in determining what constitutes a "distributable share".
15.3 On page 12 of the Explanatory Memorandum on the Bill the following is stated :
"The treatment awarded in terms of section 45 do not apply."
It is suggested that the word "do" is revised to read "does".
16. Section 46 – Transactions relating to liquidation, winding-up and deregistration
16.1 Section 46 provides that the company must within a period of 6 months after the date of the liquidation distribution take such steps as may be prescribed by the Commissioner to liquidate, wind-up or deregister the company.
16.2 It is unfortunate that the requirements are not contained in the legislation itself. The Commissioner is thus urged to publish what steps are required to be taken in order to satisfy the requirements of the section.
17. Section 64B – Levy and recovery of secondary tax on companies
It is proposed that section 64B(5)(c) be amended and that the sub-section refers to –
"Taken such steps as may be prescribed by the Minister by regulation in the Gazette to liquidate, wind-up or deregister that company …"
It is accepted that difficulties arose insofar as the Commissioner: SARS was concerned in that requests are required to be made currently to extend the period of 6 months contained in the section. The Minister is urged to publish the regulations as soon as possible so that Corporate South Africa is fully aware of the requirements to be complied with in order to enjoy the concession contained in section 64B(5)(c) of the Act. It is thus recommended that the amendment to section 64B(5)(c) shall only come into operation on the date of promulgation of the Act and the date on which the regulations are published by the Minister in the Gazette or in the event that the regulations are published after promulgation then on such later date.
18. Section 70A – Return of information by unit portfolio
The Commissioner is urged to prescribe the details required to be submitted by the unit portfolios to taxpayers in South Africa so that such sector can timeously amend systems and ensure that the necessary information is made available to investors in unit trusts in South Africa.
19. Section 70B - Return of information in respect of financial instruments administered by portfolio administrators
The comments made relating to section 70A contained above apply equally to the amendments proposed in regard to section 70B.
20. Section 81 - Objections against assessments
20.1 As indicated above it is noted that regulations are required to be promulgated in terms of section 107A of the principal Act. It was indicated in the annual Budget Speech presented to Parliament during February 2001 that objection and appeal procedures would be reviewed and streamlined so as to ensure the timeous finalisation of objections and appeals. The move in this direction must be supported.
20.2 It is hoped that the rules to be promulgated in accordance with section 107A will be made public shortly.
20.3 We have had the privilege of commenting on the draft regulations but it is hoped that such rules will be finalised and promulgated soon.
20.4 In the event that a taxpayer does not object to an assessment such assessment is final vis-à-vis that taxpayer.
20.5 Currently a taxpayer may lodge an objection against an assessment and the Commissioner may choose to allow such objection and to reduce the assessment. Unfortunately that does not mean that the matter is final vis-à-vis the taxpayer. The Commissioner can under the current wording contained in section 79(1) of the Act choose to revisit the matter and start with it all over again. It is submitted that this is inequitable and should also be reviewed as part and parcel of the process of reviewing objection and appeal procedures.
20.6 It is unclear why an assessment should be regarded as final vis-à-vis a taxpayer where an objection has not been lodged against an assessment or the disallowance of an objection has been accepted whereas the Commissioner can, even after allowing an objection, choose to review and revisit the same matter that was previously in dispute.
20.7 It is hoped that the Commissioner will under the rules to be promulgated in respect of objection and appeal procedures be compelled to make a decision on an objection within a prescribed period of time. The frustration faced by many taxpayers is the fact that an objection is lodged against an assessment and that no decision is forthcoming for many years. This gives rise to the fact that appeals heard in the current income tax Special Court relate to assessments issued some 5 or 6 years previously. This causes serious difficulty in ensuring that justice is done and seen to be done in that evidence becomes more difficult to procure and witnesses more difficult to secure at a hearing dealing with events that have taken place so many years ago. It is therefore urged that the rules to be promulgated address this shortcoming in the current procedures.
21. Eighth Schedule to Act 58 of 1962– Capital Gains Tax
21.1 Capital gains tax (CGT) was introduced by way of the Eighth Schedule to the principal Act which schedule was contained in Act No.5 of 2001, the Taxation Laws Amendment Act 2001 promulgated on 20 June 2001. The schedule originally comprised some 86 paragraphs. That schedule was subsequently amended by way of Act No.19 of 2001, the Revenue Laws Amendment Act 2001 promulgated on 27th July 2001. Act 19 of 2001 amended 11 paragraphs of the Eighth Schedule.
21.2 The current Bill under consideration by this Committee seeks to amend 52 paragraphs out of the 86 originally contained in Act 5 of 2001. We, as an Institute, requested that the date of implementation of the tax be postponed to 1 March 2002 so as to ensure that the legislation would be finalised by the date on which it took effect. As this Honourable Committee is fully aware, it was intended that the tax would originally take effect from 1 April 2001. After various submissions were made to this Committee it was decided to postpone the implementation of the tax to 1 October 2001.
21.3 We believe that it is unfortunate that 52 out of 86 of the paragraphs dealing with the tax are now being amended and that such amendments will clearly only be promulgated after the date of implementation being 1 October 2001. The difficulty facing taxpayers insofar as CGT is concerned is that they now need to have regard to two separate Acts as well as this Bill to establish exactly what the provisions relating to CGT are.
21.4 There is thus a dire need in our view that an updated and consolidated Eighth Schedule, containing all amendments to date, be made available to the taxpaying public at large so that they can establish what the final wording is insofar as CGT in South Africa is concerned.
21.5 The Commissioner: SARS must be complimented in the publicity given to the introduction of CGT and especially the details published in the print media, as well as the seminars offered to the public around the country. The SARS website has also been most useful to taxpayers in supplying information regarding the introduction of CGT. The SARS efforts in this regard must be placed on record and SARS must be complimented on its efforts in this regard.
22. Paragraph 28 – Valuation date value of an instrument
The Explanatory Memorandum on page 44 explains the intention of the legislature insofar as the amendment to this paragraph is concerned. The examples given are of wear and tear on an asset but it is submitted that this is not appropriate when one has regard to the fact that paragraph 28 deals with instruments as defined in section 24J. It is thus suggested that a more appropriate example be given such as interest incurred that was allowed under section 11(a).
23. Paragraph 35 – Proceeds from disposal
It would appear that a word has been omitted from sub-paragraph (1). The sub-paragraph should in fact read as follows :
"The proceeds from the disposal of an asset by a person are equal to the amount received by or accrued to …"
24. Paragraph 40 – Disposal to and from deceased estate
It is submitted that the word "or" contained between paragraphs (b) and (c) be deleted and that it be inserted between the current sub-paragraph (c) and the proposed sub-paragraph (d).
25. Paragraph 53 – Personal-use assets
The decision to deal with motor vehicles used by natural persons and in respect of which a taxpayer has received a travelling allowance for such vehicle on the basis that such vehicle will be regarded as being used mainly for purposes other than the carrying on of a trade must be supported. This will mean that those persons in receipt of travelling allowances will not be required to take such gain or loss from the disposal of such vehicle, as the case may be, into account for the purposes of the Eighth Schedule.
26. Paragraph 55 – Long-term assurance
26.1 The Explanatory Memorandum comments on the amendment in the following terms :
"It is proposed that the matter be clarified and if there not a cession, as in the case of group schemes, the provisions will apply."
26.2 It would appear that wording is missing from the abovementioned commentary and should be reworded along the following lines :
"It is proposed that the matter be clarified and even if there is not a cession, as in the case of group schemes, the provisions will apply."
27. Paragraph 67 – Transfer of assets between spouses
It is suggested that the Explanatory Memorandum contain reasons for the insertion of subparagraph (3) to paragraph 67. The provision appears to be an anti-avoidance measure such that assets cannot be disposed of by one spouse who is a resident of South Africa to another spouse who may not be so resident.
28. Paragraph 74 – Company distributions: definitions
It is noted that it is intended to amend the definition of "share" contained in paragraph 74 of the Eighth Schedule. It was pointed out earlier that section 1 of the principal Act will be amended to provide a definition of "foreign equity instrument" which refers to "share". The corporate rules contained in Part (iii) in Chapter (ii) also contains a definition of "share" at section 41 of the principal Act. It is suggested that the same definition be utilised throughout the legislation if at all possible.
29. Section 83 – Appeals to Tax Court against assessment
29.1 It is proposed that subsection 5(c) of the section be amended. Unfortunately the Bill as made available to us does not refer to the date on which the members of the Court holding office shall be deemed to have been appointed under the provisions of the sub-section in question.
29.2 It is proposed that subsections (20) and (22) be added to the section. It is stated that the Registrar of the Tax Court shall be appointed by the Commissioner and shall become an employee of the South African Revenue Service. It is specifically required that the Registrar shall exercise their functions in accordance with the provisions of the Act and the rules independently and impartially. Practically it does make sense that the Registrar is an employee of the South African Revenue Service and this in fact may detract from the perception that the public has that the Registrar is indeed independent and acts impartially. Would it not be preferable if the Registrar were appointed by the Ministry of Justice and remained an employee of that department? In the event that this is a viable alternative clearly the Registrar would still be required to take the oath envisaged under section 4 of the principal Act and similar provisions contained in other statutes.
30. Section 88 – Payment of tax pending appeal
30.1 The section currently provides that the obligation to pay any tax chargeable under the Act shall not be suspended by any appeal unless the Commissioner so directs. It is submitted that the section is deficient insofar as objections to assessments are concerned. It is accordingly recommended that section 88 be amended along the following lines :
"(1) The obligation to pay and the right to receive and recover any tax chargeable under this Act shall not, unless the Commissioner so directs, be suspended by any objection lodged against an assessment or by any appeal or pending the decision of a Court of Law under section 86A ..."
30.2 It is accepted that in the event that an assessment is issued against the taxpayer that the taxpayer is obliged to pay such assessment. Where, however, an objection is lodged against such assessment the taxpayer should have the right to postpone payment of the tax in the event that the Commissioner agrees thereto, which unfortunately is not apparent when one reviews section 88 or indeed section 81 of the Act.
31. Section 103A – Write off of tax
The enactment of the various sections in the fiscal statutes to allow the Commissioner to write off amounts of tax must be supported. Previously the Commissioner was unable to do so by virtue of treasury regulations and other statutory limitations. In certain cases it will be necessary for the Commissioner, as indeed for any other creditor, to make a commercial decision as to the recovery of a debt due.
32. Paragraph 84 - Foreign currency: regulations
32.1 We have had sight of the draft regulations envisaged under paragraph 84 of the Eighth Schedule. It is hoped that these regulations will appear in the Gazette shortly.
32.2 It is submitted that the wording contained in subparagraph (1) should be revised along the following lines :
"The Minister must, by way of notice in the Gazette, issue regulations to determine the capital gain or capital loss of persons (other than trusts carrying on any trade, companies or natural persons who hold any foreign (instead of foreich) currency asset, foreign currency option contract or forward exchange contract as a result of any trade conducted by them) in respect of …"
32.3 Our comments made in regard to natural persons and the amendments proposed to section 24I should be read in conjunction with the comments made in regard to paragraph 84 of the Eighth Schedule.
33. Paragraph 85 – Limitation of Foreign Currency Losses
The decision to repeal this paragraph thereby removing the "ring-fencing" provision insofar as foreign currency capital losses are concerned must be welcomed.
CUSTOMS AND EXCISE ACT, ACT 91 OF 1964
34. Section 4 – Secrecy Provisions
34.1 The comments made regarding section 4 of the Income Tax Act of 1962, as amended apply equally to the proposed amendments to section 4 of the Customs and Excise Act.
34.2 It is noted that the amendments envisage the Commissioner making information available to the Treasury or the Governor of the South African Reserve Bank. The reason for this amendment is understood but once again a fine balance is required to be struck between the right of the citizen to privacy and right to enforce the statutes of the country.
35. Section 38
We support this amendment as it prescribes by rule what the Commissioner’s authority is, and thereby limits his discretion when it comes to the date of due entry.
36. Section 43
36.1 We support in principle that other warehouses can be deemed to be State Warehouses due to the practical problem that the current State Warehouses are full or are near capacity. We agree that the warehouse operator needs to be liable for the duty.
36.2 Section 43(2)(b)(i) – we believe this section should be more specific as to the warehouse operators responsibilities. These should be set out in the Act or by specific rule to ensure that there is no uncertainty.
36.3 Section 43(2)(b)(ii) – refers only to being liable for "duty" – we believe it should be amended to include "Value Added Tax and any other statutory charges such as wharfage".
36.4 Section 43(2)(c) (i) – publication notification normally includes by publication in the Government Gazette. Was this left out intentionally?
36.5 Section 43(3) – refers to "except if they have been imported in contravention of any law". It is important that the Commissioner follows specific procedures to ensure that all laws have been complied with. However with the current staff shortage how can the Commissioner reasonably be expected to comply with this section? In addition, subsection (a) refers to a price that is "reasonable". What criteria will be looked at to determine this reasonable price and does it not have too much discretion?
36.6 Section 43(5)(b) – this section seems to state that the Police or other authority must pay the customs duty and VAT before the goods can be released. However the section refers to "enter into consumption" – should this not refer to "home consumption" as it is specifically defined in the Act. Also why does the police have to pay the duty etc? It does not sound practical that the police must pay duty to be able to prosecute a criminal.
36.7 Section 43(6)(a) – has the consequential change been made to the Counterfeit Goods Act to empower a customs officer?
36.8 Section 43(7)(a) – why has it been prescribed that the Commissioner should consult with the Director-Generals of National Treasury and Trade & Industry? What about other Director-Generals? Should the section not give the Commissioner discretion to consult with the Director-Generals?
36.9 Section 43(7)(b)(v) – refers to "any other purpose….in the public interest". This seems to give the Commissioner very wide powers of discretion. We believe that it should be limited and force the Commissioner to consult with other departments who will be affected by the disposal.
36.10 Section 43(7)(d) – refers only to "duty" – what about VAT and other statutory charges?
37. Section 47
37.1 This section has clarified a few issues and we support the general intention of the amendments.
37.2 Section 47(8)(a) – refers to the Explanatory Notes – does this include the "Compendium of Opinion" issued by World Customs Organisation as well.
37.3 Section 47(9)(iii) – states that that determination is only effective from the date issued. Why can it not be retrospective for 2 years?
37.4 Section 47(9)(b)(ii)(aa) – we believe that this places an undue burden on the importer to ensure that his determination is not impacted by changes to the Explanatory Notes or court cases. Should this function not be performed by the Commissioner and his determination should be in place until it is withdrawn?
37.5 Section 47(9)(c)- we believe that the Commissioner should be liable for interest if a determination was changed.
37.6 Section 47(12)(d)(i) – we do not believe that there should be a prescription period on the validity of a tariff determination.
37.7 Section 47(12)(d)(iii) – not clear whether this section covers determinations used to classify goods that are entitled to benefits under the Motor Industry Development Programme and other such export credit programmes.
38. Section 65
38.1 We support that this section has been extensively rewritten to cover "value determinations" and that all determinations must be in writing.
38.2 Section 65(4)(c)(ii) – we believe that the determination should be in place until the Commissioner withdraws it. We believe that the burden of proof is on the taxpayer in this case and to expect the taxpayer to monitor all legislative changes, court cases etc on how it impacts the value determination is unreasonable.
38.3 Section 65(4)(c)(iii) - it is submitted that the Commissioner should be liable to pay interest. The same comment applies to section 47(9)(c) of the Act.
39. Section 69
39.1 We support that this section has been extensively rewritten to cover "value determinations" and that all determinations must be in writing.
39.2 Section 69(3)(d) – we believe that the determination should be in place until the Commissioner withdraws it. We believe that the burden of proof is on the taxpayer in this case and to expect the taxpayer to monitor all legislative changes, court cases etc on how it impacts the value determination is unreasonable.
39.3 Section 69(3)(e) - we believe that the Commissioner should be liable for interest if a determination was changed.
40. Section 95A40.1 We support the formation of a committee to hear appeals of any decision the Commissioner has made under Section 91.
40.2 We believe clear rules need to be in place on who can sit on this committee to ensure that the bona fides of such a committee is maintained. The section also needs to cover the period people can serve on such a committee and the election process.
40.3 Section 95A(8)(a) – does not define who has access to the public record. In anti-dumping cases only "interested parties" as defined may have access to the files. We believe that this should be considered.
40.4 Section 95A(8)(b) – does not state how all parties will be advised. By Government Gazette we presume.
40.5 Section 95A(8)(c) – new determinations should also be published in the Government Gazette.
40.6 Section 95A(9)(a) – most importers will claim that the information supplied will be confidential. It is not clear who will make the decision on whether information is confidential or not.
41. Section 114We support this change.
42. GeneralIn the prior proposed amendments there was a proposed amendment to the definition of duty to include VAT. This was not subsequently removed. In effect goods, which are free of customs duty, still cannot be stored in a customs & excise warehouse (bond store). We believe that this amendment is still necessary and should be pursued.
VALUE ADDED TAX ACT, ACT 89 OF 1991
43. Section 143.1 It is proposed that the definition of "Welfare Organisation" be amended. Unfortunately the date on which such amendments shall take effect has not been specified in the Bill made available to us.
43.2 In reviewing the proposed amendment to the definition of "Welfare Organisation" it is unclear whether one must have regard to the schedule of public benefit activities enacted in accordance with section 30 of the Income Tax Act of 1962, as amended or whether the Minister will publish a separate schedule for the purposes of the Value Added Tax Act. This position should in our view be clarified.
43.3 Furthermore, the definition refers to "welfare activity". Should this rather not be consistent with the terminology contained in the Income Tax Act namely any "public benefit activity".
44. Section 6 – Secrecy provisionsThe comments made insofar as section 4 of the Income Tax Act of 1962, as amended apply equally to the proposed amendments to the secrecy provisions contained currently in the VAT Act.
45. Section 12 – Exemptions from VAT45.1 The Explanatory Memorandum on the proposed Bill at page 74 refers to a sub-clause dealing with educational activities but does not unfortunately refer to the clause number. It would appear that such reference should be sub-clause (h).
45.2 The Bill provides that sub-section 1(a) shall come into operation on a specific date but unfortunately the Bill as made available to us does not refer to any specific date.
46. Section 20 – Tax invoicesThe proposal to review the monetary thresholds in relation to the issuing of various categories of tax invoices must be supported. It is hoped that these amendments will take place on a more regular basis than in the past.
47. Section 36 – Payment of tax
It is submitted that the section should be amended to cater for the postponement or suspension of payment pending a decision on an objection lodged against a VAT assessment. The comments made in regard to section 88 of the Income Tax Act of 1962, as amended apply equally to this section.
48. Amendments to VAT Act as a consequence of the proposed introduction of industrial development zones
We are unable to comment on these amendments as we have not had sight of such amendments.
Time to consolidate
We have seen significant amendments introduced to fiscal legislation in South Africa in the last 4 years. It is interesting to note that the following amending statutes have been enacted since 1997:- Income Tax Act, Act 28 of 1997- South African Revenue Service Act, Act 34 of 1997- Taxation Laws Amendment Act, Act 30 of 1998- Taxation Laws Amendment Act, Act 32 of 1999- Revenue Laws Amendment Act, Act 53 of 1999- Taxation Laws Amendment Act, Act 30 of 2000- Revenue Laws Amendment Act, Act 59 of 2000- Taxation Laws Amendment Act, Act 5 of 2001- Revenue Laws Amendment Act, Act 19 of 2001.
In addition to the above this Honourable Committee is now considering the Second Revenue Laws Amendment Bill which comprises some 233 pages.
In the last while we have seen amendments introduced changing the basis of taxation from a comprehensive source based system to a partial resident system in 1997 by way of the introduction of sections 9C and 9D. During the 2000 tax year we saw amendments introducing the rules on the taxation of foreign dividends now enshrined in section 9E. Subsequent thereto we saw legislation introducing the change from the source basis to the residence basis enshrined in Act 59 of 2000. More recently we have seen two Acts promulgated as well as the current Bill under consideration dealing primarily with CGT.
The concern as identified above relating to CGT is the fact that the wording of the sections regulating such tax are now contained in three separate pieces of legislation. SARS is urged to publish one updated consolidated Eighth Schedule so that taxpayers know what the statutory provisions are insofar as CGT is concerned.
It is hoped also that we will not see a further significant number of amendments to the Income Tax Act and related statutes in the next short while.
We accept that it is necessary to amend and review the provisions contained in any taxing statute but it is hoped that the amendments thereto will in the future be limited to that which is absolutely necessary so as to allow for a time of consolidation insofar as fiscal legislation in South Africa is concerned.
The decision to introduce the corporate rules as part of the Principal Income Tax Act must be supported. The one concern that must be raised in relation thereto is the procedure to be adopted by taxpayers in ensuring that they indeed comply with the requirements contained therein. Unfortunately the statute does not deal with this matter and it is submitted that it should. Previously taxpayers required rulings from the Commissioner: South African Revenue Service as to whether or not section 39 of the Income Tax Act, Act 113 of 1993 applied or section 60 of the Taxations Laws Amendment Act, Act 20 of 1994 applied. It is submitted that the corporate rule to be enshrined in Part (iii) in Chapter (ii) should prescribe the procedure to be followed by taxpayers to ensure that they comply with the provisions of the proposed sections. This will ensure certainty for taxpayers and hopefully reduce abuse of the proposed sections.
We usually supply an attachment to our submission on fiscal legislation dealing with the various monetary limits contained both the Income Tax Act and the Value Added Tax Act. We have refrained from doing so in this submission by virtue of the undertaking given in this forum earlier this year that the monetary limits in the various fiscal statutes will be reviewed and taken into consideration in drafting amendments during 2002. We thus look forward to announcements thereon in the Budget Speech to be presented to Parliament during February 2002.
The Commissioner issued a Charter of Taxpayers’ Rights some time ago and has indicated that the question of taxpayers’ rights in South Africa is under review. Clearly taxpayers have obtained certain rights that they did not have before as a result of the introduction of the Constitution of the Republic of South Africa, Act 108 of 1996, as amended. Unfortunately though, taxpayers whose rights have been violated by the Commissioner: SARS do not currently have an effective remedy for such breaches of rights. We are aware that the matter is under review but want to place on record that we believe that the decision as to whether or not to introduce a tax ombudsman or similar office within South Africa must receive attention and brought to finality shortly. Unfortunately we as an Institute become aware of too many cases where the taxpayer’s rights to particularly administrative justice and access to information are denied by the Commissioner and this in our view needs to be rectified via the introduction of a tax ombudsman and also the expanding of the Charter of Taxpayer’s Rights as well as giving some legal standing thereto. We look forward to being involved in the ongoing debate relating to this important aspect of fiscal administration in South Africa.
SAICA wishes to express its appreciation for being afforded the opportunity to comment on the batches of legislation made available to us over the last few weeks. We are privileged to be part of the process in commenting on fiscal legislation in this country and hope that we contribute to a healthy debate thereon. The one concern though that we must express is that the comprehensive second Revenue Laws Amendment Bill and Explanatory Memorandum was only made available to us on 10th October 2001 and that this Honourable Committee’s secretary required written comment from us by 11th October 2001. Clearly this was not possible and we apologise therefore. We trust that in future we will be afforded more time to comment properly on the composite Bill introduced into this Honourable Committee for consideration. SARS is also urged to set out its objectives in introducing amendments to the legislation as and when the batches of legislation are made available to us so that we may comment more properly thereon and not try to guess as to the real reason for the proposed amendments.
B J Croome
CHAIRMAN: TAXATION COMMITTEE
The South African Institute of Chartered Accountants