Thank you for the opportunity to comment on and participate in the panel discussion on the proposed changes to s103 of the Income Tax Act.

I represent both SAFSIA and the FPI and would like to begin by introducing both organizations to you.

SAFSIA was formed in 1949 as a representative body for financial services intermediaries and has as its members small and large corporates as opposed to individuals. Its members currently act as intermediaries for more than 70% of all Short Term Insurance, more than 30% of Life Assurance and related investment products and more than 80% of Retirement Fund business in South Africa.

The FPI was formed in 1981 and is the representative body for professional financial planners in South Africa and its membership is made up of individuals who are only allowed to use the designation Certified Financial Planner by invitation from the FPI, upon obtaining a Post Graduate Diploma in Financial Planning. Members of both these bodies are required to subscribe to a strict code of conduct.

In addition members of the FPI are also bound by the Generally Accepted Planning Principles (GAPP) and are compelled to keep up to date by accumulating points towards continued professional development, either through further studies, approved seminars and presentations and approved financial journals.

Members of both organizations are involved either directly or indirectly in Financial Planning and related intermediary services in the Financial Services arena. We consider financial planning to be a profession, and not unlike other professions, we expect and demand only the highest standards and level of compliance from our members.



All aspects of taxation form an integral part of both personal and corporate financial planning. Therefore all our members are compelled to have a fairly in depth knowledge of taxation and compliance thereof.

The advent of the Financial Advisory and Intermediary Services Act (FAIS) demands a high level of compliance from our members. We consider tax compliance to be very much a part of this, not only in their individual circumstances but also in the manner and type of advice that they dispense.

The problems that our members face with Section 103 and indeed, the Act as a whole lies in the ambiguity of the wording and lack of simplicity. We are fully in support of the proposed changes to Section 103, which has proven time and again to be an ineffective deterrent in the hands of aggressive tax and financial planners.

However we still believe that the current proposals may not be the solution to the problem of avoidance bordering on evasion. We would like to see clear guidelines put into place and we believe that while some of the current proposals do address this, there are however some shortcomings.

The following are our views on the proposed amendments:

The Abnormality Test

In keeping with the other countries surveyed we believe that the Abnormality test should be removed. We do not believe that creating a "non exclusive" list of factors in determining abnormality is an ideal solution. On the contrary it could lead to further abuse and finding of loopholes within these factors by clever and over zealous tax planners.

Unfortunately we as a nation have yet have to evolve fully in the realm of compliance and until we do, taxpayers are still going to be lured by the attraction of further tax savings albeit that it borders on evasion.

Therefore if the abnormality requirement has been recognized as the "Achilles heel" of the avoidance regulation then surely it does not make sense to keep it with further provisions that can ultimately be abused.

An Objective Purpose Requirement

In principle we agree that the move from subjective purpose requirement to an objective test as practiced in other countries is a wise one. This would set the parameters clearly with little or no ambiguity.

Application to steps in a Larger Scheme

We agree that this step is in the best interests of both the taxpayer and Revenue Services. With more sophisticated and global business opportunities knocking on the doors of South African taxpayers, this step becomes almost necessary.

Application in the Alternative

This too is a necessary amendment which would meet with our approval as the technicalities surrounding s24J are an oft used loophole in aggressive tax planning.


We agree that specific penalties are necessary and these could act as a deterrent in itself.

Implementation and Related Issues

We would welcome any move that modifies the present Advance Tax Ruling System that would enable taxpayers to have clear guidance and certainty in respect of not only the application of these new provisions but of other avoidance sections as well.

In conclusion we see any move towards engendering a culture of tax compliance in a positive light as we believe that it makes the task of our members that much easier. We are of the opinion that professional bodies such as ourselves should be setting examples and encouraging our members to educate their clients on tax compliance which would obey, not just the letter of our current tax laws but the spirit as well, thus ultimately benefiting all South Africans.