 South Africa could be sitting on a tax revenue gold mine. This is according to Ettiene Retief, Chairman of the National Tax Committee at the South African Institute of Professional Accountants (SAIPA).
Unfortunately, the government has so far failed to exploit a massive, untapped market for recreational cannabis consumption, both locally and globally. “Although I’m not an advocate of it, I cannot ignore the incredible growth this emerging industry is experiencing and the phenomenal potential it presents for taxation,” says Retief. International success Retief cites the success of Colorado in the USA. In 2012, its citizens voted to legalise recreational marijuana use for adults. Since then, the state has seen over USD 10 billion in total sales and, in the last six years, tax on the product has amounted to over USD 1.6 billion at the state level alone. Revenue resulted from a 2.9 percent sales tax on medical and recreational sales, and a 15 percent excise tax when the cannabis leaves the grower. This excludes tax on industrial hemp, which the state legalised in 2010. Witnessing the sustainability of this new tax revenue stream in both Colorado and Washington, four more states voted last year to legalise cannabis - New Jersey, South Dakota, Montana and Arizona. “We’re seeing a similar trend in other countries as governments realise that, with the right controls, recreational and medical cannabis can be exceptionally lucrative,” says Retief. Benefits for South Africa Apart from duties and VAT on the production and distribution of legalised cannabis, the so-called “sin tax” on cigarettes and alcohol could also apply to this similar product. And that’s just the beginning. “Let’s not forget the vast supply chain that would emerge, the corporate tax on those activities, including imports and exports, taxable income from the jobs created, and much more,” says Retief. For example, production and retail could extend into tourism – say in the form of “dagga safaris” that would bring much needed relief to the hospitality industry – or by-products like industrial hemp and compost. Retief notes that South Africa is already a major cannabis producer with a thriving illicit market. “Legalising the sector will reduce crime, improve quality and safety, promote safer consumption, and regulate production while securing tax revenues,” he asserts. A gradual adoption The biggest constraints to legalising marijuana for recreational use are traditional assumptions about the dangers it poses to society, its reputation as a gateway drug, and protective laws. Yet, almost a decade later, the population of Colorado has not been reduced to mindless zombies or heroin addicts. Of course, this does not eliminate the need for careful planning, the development of sensible regulation, education, and a prudent roll-out by the government. A major consideration must be the acceptable legal age of users and how to protect minors from exposure. Health and safety standards and supply chain controls also need to be determined. Amendments to laws to address the risks, such as driving vehicles and being under the influence at work. Lawmakers could at first utilise Special Economic Zones, not only to restrict manufacturing and sales to isolated areas, but also as unique tourist spots that would attract both overseas and local guests. This proof-of-concept approach would allow for gradual change instead of abrupt adoption. In any case, the government needs to start consulting with stakeholders now to determine the best way forward. “South Africa is ideally positioned to take advantage of this tax revenue source and our cash-strapped state cannot afford to dismiss offhand such a sure bet,” concludes Retief. ENDS MEDIA CONTACT: Idéle Prinsloo, 082 573 9219, idele@thatpoint.co.za, www.atthatpoint.co.za For more information on SAIPA please visit: Website: www.saipa.co.za Twitter: @SAIPAcomms LinkedIn: South African Institute of Professional Accountants Company Facebook: South African Institute of Professional Accountants
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SARS collected R1.28 trillion for the tax year ending 2019, falling R14.6 billion short of its target of R1.3 trillion. However, Ettiene Retief, Chairman of the National Tax and SARS Committee at the South African Institute of Professional Accountants (SAIPA), believes the tax authority should be commended.
“SARS’ operations have been hampered by significant handicaps due to past mismanagement, including a massive VAT refund obligation, deep systemic breakdown and flagging employee morale,” says Retief. “Add to that weak economy growth and the steps implemented to rebuild SARS, it is commendable to have fared so well.” Well done, Mark Kingon According to Retief, that SARS was able to come so close to its expected revenue target can largely be attributed to the excellent work of Mark Kingon, the organisation’s outgoing interim commissioner, and his team. “Mark definitely deserves recognition for his leadership in keeping SARS from operational failure, and staring to rebuild trust in the organisation,” he says. Revenue realised under Kingon has grown by 5.8% compared to the previous financial year. Also, much of the work done in the background will continue to bear fruit long after this year’s final audits are completed. Retief points to initiatives like relaunching the Large Business Centre (LBC) which, even though it delivered notable value, was terminated under disgraced former SARS commissioner, Tom Moyane. Kingon has also implemented processes for combating illicit tax activities and correcting internal issues. “These progressive steps may result in windfalls that have yet to be realised,” Retief observes. “Overall, we can expect that Kingon’s efforts will provide a strong platform for the incoming commissioner to work from.” Good job, President Ramaphosa Retief also applauds the transparent selection process used to vet potential candidates and nominate the new SARS commissioner. Unlike previous president, who at times appointed a commissioner based on personal or political preference, President Ramaphosa opted for an approach that was both open and objective, effectively placing himself at arm’s length from the proceedings, as was recommended by the Commission of Inquiry. A high-level panel, led by Trevor Manuel, was appointed by Finance Minister Tito Mboweni, to identify capable applicants and make their selection from a list of candidates that included Mark Kingon himself. Their final choice was Edward Kieswetter, who will take up the role of Commissioner of SARS from 1st May. Welcome, Edward Kieswetter “There’s no doubt Kieswetter is up to the task,” says Retief. “Apart from having been part of SARS’ history, he has a strong pedigree when it comes to running organisations, including heading up Alexander Forbes.” No doubt, the new commissioner will have his hands full as he builds on the good work started by Kingon. However, Kieswetter’s first and foremost task will be to re-engage SARS staff, whose attitude and competence plays a pivotal role in winning back public trust and rebuilding tax morality. He’ll need to provide strong leadership, assure them of their value and motivate them to value service excellence. Secondly, he’ll have to focus on rebuilding SARS systems and capacity. . “He has a long road ahead of him but he’s the right man for the job,” says Retief. ENDS MEDIA CONTACT: Stephné du Toit, 084 587 9933, stephne@thatpoint.co.za, www.atthatpoint.co.za For more information on SAIPA please visit: Website: www.saipa.co.za Twitter: @SAIPAcomms LinkedIn: South African institute of Professional Accountants Company Facebook: South African Institute of Professional Accountant Authored by: Ettiene Retief, Chairman of the National Tax and SARS Committee at the South African Institute of Professional Accountants
The decision by the South African Revenue Service (SARS) to re-establish its Large Business Centre (LBC) will undoubtedly ease the administrative and compliance burden of big business and high net-worth individuals. It will also enhance tax collections that have fallen sharply since the centre was dismantled in 2015 following major restructuring under the reign of suspended commissioner Tom Moyane. Under the restructured business model, currently the focus of the Nugent commission of inquiry into governance and administration at the tax agency, the LBC was systematically dismantled to “eliminate duplication and improve efficiencies”, SARS said at the time. The impact of the dismantled LBC The tax affairs of large corporates and high net-worth individuals are highly complex. Their risk profiles differ vastly from ordinary taxpayers. The potential loss to the fiscus is substantial if they are not managed properly. Before the LBC was dismantled it was responsible for the collection of more than 30% of total tax collections. This included individual income tax, corporate income tax, Value Added Tax, employee taxes, dividends tax, donations tax and royalties tax. The dismantling of the centre led to a decline in the ability of SARS to collect what was due to the fiscus. Concerns were also raised about a decline in compliance. The “one-stop-shop” for large businesses was gone, leaving multi-million-rand enterprises in the same position as ordinary taxpayers. This had a major impact on the way they had to deal with complex issues, the manner and time in which queries was solved, audits conducted, and disputes resolved. Compliance, collections and enforcement When the LBC was established in 2004 the aim was to encourage compliance, to ensure responsible enforcement and to offer specialised and sector specific expertise to large businesses. Sector specific expertise was developed in the most crucial sectors in the economy, including financial services, construction, mining and agriculture. The scope of the LBC covered listed and unlisted companies, parastatals and high net worth individuals. Expertise in highly complex tax legislation, notably transfer pricing, was developed to ensure that revenue is taxed where it is generated. The expertise in the LBC was not only in terms of the interpretation and implementation of tax legislation, but also included expert knowledge of the businesses in the different economic sectors. This assisted hugely with greater administrative knowledge, better risk-profiling in terms of audits, and better audit and dispute outcomes. The LBC ensured that there was one dedicated relationship manager which dealt with clients within specific sectors. This meant that a company raising a specific issue or query with SARS were dealing with the same individuals, who not only understood the essence of the issue, but was able to give feedback to how the matter was being dealt with. The dismantling led to much of the expertise being lost to SARS. An exodus of expertise followed the restructuring process, which was done by the consultancy firm Bain at a cost of more than R160m. Pivotal role of the LBC The announcement by Acting commissioner Mark Kingon to re-instate the LBC, as well as the Illicit Economy Team, must be welcomed. The acting commissioner said in his statement, announcing the move, that it was based on the “pivotal role” these units play in its service to large corporate taxpayers, and in fighting illicit trade in the country. SAIPA supports the move to re-establish the LBC. There is a deep understanding of the time and effort it will take to rebuild the capacity that existed before the dismantling of the units. However, this will certain increase better administrative outcomes, faster turnaround times and better compliance, audit results and dispute resolution. Although SARS has not put a timeline on when the units will be reinstituted, the fact that dedicated teams have already started the process, is encouraging. ENDS MEDIA CONTACT: Idéle Prinsloo, 082 573 9219, idele@thatpoint.co.za, www.atthatpoint.co.za For more information on SAIPA please visit: Website: www.saipa.co.za Twitter: @SAIPAcomms LinkedIn: South African institute of Professional Accountants Company Facebook: South African Institute of Professional Accountants With the annual tax filing season well underway, the South African Revenue Service (SARS) seems to be pulling all the stops to get back on track and to collect taxes in an efficient and effective way, says Ettiene Retief, Chairman of the National Tax and SARS Committee at SAIPA.
The near disastrous changes to the operating model of the tax authority under the management of suspended commissioner Tom Moyane has led to a decline in tax morality and revenue collections. Acting commissioner Mark Kingon has however vowed to tweak things to collect the taxes government needs. Tweaking the model Retief says structural changes made under Moyane include the dismantling of the Large Business Centre (LBC) which focussed on large and multinational companies and high net worth individuals. These two categories of taxpayers are responsible for a large chunk of the tax revenue collected by SARS. Their tax affairs are generally complex and hold risks for the fiscus if it is not managed properly. The reasoning behind the dismantling of the LBC was the unnecessary duplication of resources. “The LBC has a clear role to play in operational efficiency and effectiveness,” says Retief. Transfer pricing practices in cross border transactions offer opportunities for base erosion and profit shifting. “Surely a transfer pricing unit that can focus at that level is a far more efficient use of resources and the management of tax risks,” says Retief. “Any large business will tell you how frustrating the process has become when dealing with complex matters with officials who do not have the experience to deal with it properly.” Retief says SAIPA fully supports the refocus on the LBC and the re-establishment of certain functionalities which will allow SARS to collect revenue in a far more efficient and effective way. The tax affairs of rich South Africans equally require specialised skills since the risks are vastly different to that of an average taxpayer. They generally have complex trust structures, deductions for venture capital company investments, loans and beneficial ownerships that requires a different set of auditing skills. Auditing capabilities Retief says there is sufficient causal evidence that there has been a deterioration of auditing efficiency. The audit of an average taxpayer is not supposed to take more than four months. “There has to be a balance between an efficient auditing process and happy taxpayers who are not unduly frustrated or disadvantaged.” Retief says SARS will have to restore the faith taxpayers had in the tax authority and how it collects taxes. Government needs to gain taxpayer’s trust in how it is spending their money. There must be a change in the ethos of the business. Taxpayers who are complaint should be respected. However, painting everyone with the same non-compliant brush serves nobody. Shorter time to file SARS has proposed a shorter filing season for non-provisional taxpayers to enable it sufficient time to complete its verification and audit processes. Filing season will close at the end of October for taxpayers who are using the electronic filing platform offered by SARS. Provisional taxpayers still have until the end of January. Retief supports the shorter filing season, saying it will lead to a natural increase in compliance and collections. ENDS MEDIA CONTACT: Idéle Prinsloo, 082 573 9219, idele@thatpoint.co.za, www.atthatpoint.co.za For more information on SAIPA please visit: Website: www.saipa.co.za Twitter: @SAIPAcomms LinkedIn: South African institute of Professional Accountants Company Facebook: South African Institute of Professional Accountants During his 2018 national budget speech on 21 February, former Finance Minister Malusi Gigaba announced that the government would invest R57 billion in free tertiary education. This is to help those from households with a combined income of under R350,000 per annum to study further and secure better futures for themselves.
Support for the plan While the South African Institute of Professional Accountants (SAIPA) fully supports assistance to enable higher education, measures must be implemented to ensure the country benefits from this substantial investment. This is according to Ettiene Retief, Chairman of the National Tax and South African Revenue Service (SARS) Committee at SAIPA. “Yes, we need to assist those who aspire to be more but find themselves bound to a lower income group,” he states. “However, according to the then Finance Minister, this will be the fastest growing expense line item in our budget year on year, and several shortcomings need to be addressed.” The allocation is expected to see an average annual growth of 13.7%. No correlation with skills shortage South Africa suffers from a shortage of specific skills and would do well to direct funding to the degrees that will give it an economic advantage. “We should provide guidance to steer the youth as merely obtaining a degree will not guarantee a job or ensure an economic return on investment,” says Retief. Free degrees should be used as an incentive for young people to follow valued career paths. No skills retention plan After completing their studies, graduates are under no obligation to remain in South Africa. “If they use their degree as an entry qualification to another country,” says Retief, “we immediately lose the benefits of free education.” Some professions require a period of practical application, like doctors serving in state hospitals, and Retief suggests that a similar requirement should be made of free degree holders. There is no indication of a limit to the amount of time a student may spend on their degree. According to Retief, study credits may remain valid for up to 10 years. “When a person pays tuition or gets a student loan, there is some urgency in completing the degree, but if funding is unlimited the student can take 10 years to complete a three-year degree”. “Also, how do we ensure that the person will even obtain their degree after spending years at university”. Free degrees should therefore be time restricted. Also, higher-education institutions have limited capacity, and can only accommodate a limited number of students. Lower appreciationIt’s a well-established fact backed by much research that when people get something for free, their appreciation of its value is much lower than if they had to pay for it themselves, even if they only make a small investment. “While free tertiary education is commendable,” says Retief, “the learner should make some investment themselves. This will give students ownership of their studies and the perseverance to achieve their goals.” Overall, Retief contends that the government should only implement free tertiary education with comprehensive guidelines and limitations. “Rather than announcing an arbitrary figure, they need to provide details on how the plan will be implemented and how it will achieve its aim of developing the skills the country needs.” ENDS MEDIA CONTACT: Idéle Prinsloo, 082 573 9219, idele@thatpoint.co.za, www.atthatpoint.co.za For more information on SAIPA please visit: Website: www.saipa.co.za Twitter: @SAIPAcomms LinkedIn: South African institute of Professional Accountants Company Facebook: South African Institute of Professional Accountants South African taxpayers have to prepare themselves for several tax increases this year in order for the government to plug the gaping revenue deficit, warns Ettiene Retief, chairman of the national tax and South African Revenue Service (SARS) committee at the South African Institute of Professional Accountants (SAIPA).
Growing deficits Finance Minister Malusi Gigaba estimated a tax revenue deficit of almost R51bn in the 2017-’18 tax year during his maiden Medium-Term Budget Speech in October last year. The deficit is set to increase to R69bn, or even greater, in the tax year that starts at the end of this month, however, this is without having regard to the additional income required to fund tertiary education for poor households. Former President Jacob Zuma made this surprise announcement at the end of last year. Gigaba will present the budget on 21 February to Parliament. More tax collections without higher rates Retief says taxpayers should expect adjustments to the current taxable income brackets which will increase tax collections without the need to increase the actual rates. Last year the levels of all the taxable income brackets were increased by 1 percent and a new top personal income tax bracket of 45 percent for taxable incomes above R1.5 million per year was introduced. Retief says it is “unlikely” that the top marginal rate will be increased any further. He refers to the “Laffer curve” which demonstrates that increasing taxes beyond a certain point is counterproductive, and revenue collection may even decline. “An increase in the top marginal tax rate may result in increased efforts to evade tax by hiding income, or shifting income and wealth to other tax jurisdictions.” Wealth and other taxes Retief is not convinced that the time is right for a wealth tax. South Africa already has taxes on wealth accumulation such as capital gains tax, estate duty and property levy when acquiring a property. The maximum rate of 45% already impacts on the tax on trusts, and on capital gains. “People (who fall into the top tax rate) are not only taxed at a higher rate on the income they earn, but it also impacts the tax they pay on their capital gains when disposing of assets.” This year will see the introduction of the much-debated sugar tax, but at a lower rate as previously proposed. The lower rate will not only yield lower revenue collections as originally estimated but could negatively affect the intended purpose of the sugar tax as international research has indicated that a high tax rate is required. VAT – the elephant in the room Government has been warning that an increase is on the cards. “I would not be that surprised if it is increased,” says Retief. “The political environment is different from what it was just a few months ago. The economic climate has changed and growth prospects are slightly better, so perhaps it is now the time for an increase.” A one percentage point increase to 15% could raise R20bn. The impact on the poor may be offset by the inclusion of more zero-rated items, or more targeted assistance for the poor. Previously it was announced that the zero-rating on fuel will be scrapped but was subject to consultation. It is unclear how much tax it could generate, given that businesses can claim back their VAT on fuel purchases. If fuel was subject to standard rate VAT, domestic transport of passengers and luggage is exempt in terms of VAT, which means the owner of a taxi will not be able to claim back the VAT on fuel because of the scrapping of the VAT zero-rating. The cost will most probably be passed on to consumers. Cryptocurrency The increase in popularity and use of cryptocurrencies (such as Bitcoin, Ethereum, Litecoin, Ripple, and IOTA) should be addressed, as the lack of regulation and disclosure could be used to evade taxes and circumvent exchange controls. There is some uncertainty as to the correct taxing of gains and losses made with trading or holding cryptocurrencies. The South African Revenue Service (SARS) confirmed that it will clarify its position on the tax treatment of cryptocurrencies early in 2018. Also, the South African Reserve Bank (SARB) issued a media statement on 13th February 2018 in regards to the establishment of the Financial Technology (FinTech) Programme with its first objective to review SARB’s position on cryptocurrencies to inform appropriate policy framework and regulatory regime. SAIPA Budget Breakfast SAIPA will be hosting its annual Budget Speech Breakfast on 22 February at the Royal Elephant Hotel and Conference Centre, in Centurion where a panel of expert speakers will discuss the impact of the President’s announcements. To book, please visit https://www.saipa.co.za/events-resources/ ENDS For interviews with Ettiene Retief contact: Idéle Prinsloo, 082 573 9219, idele@thatpoint.co.za, www.atthatpoint.co.za For more information on SAIPA please visit: Website: www.saipa.co.za Twitter: @SAIPAcomms LinkedIn: South African Institute of Professional Accountants Company Facebook: South African Institute of Professional Accountants Author: Ettiene Retief, Chairperson of National Tax and SARS committee of the South African Institute of Professional Accountants (SAIPA)
Trusts are often seen as the be all and end all of estate planning. However, the way in which our living situations, financial planning, tax and legal provisions have changed over the past few decades, means that trusts are no longer a good financial decision for many people. A recent report by Sanlam investment plan, Glacier, found that the majority of South Africans who reach retirement haven’t made adequate provision for their retirement. Our financial planning problem is living, not dying. People see trusts as the silver-bullet of estate planning but the truth is that only a handful of people will truly benefit from setting up a trust. Changing environment The average household dynamic and life expectancy of a few decades ago is very different to the situation that we have today. In the past, the man of the household would often join a company for life and when he retired, he would receive a pension fund from the company. With a stay-at-home wife and a few kids, a husband would perhaps see it as a wise financial decision to set up a trust for his wife, who would probably outlive him by at least a decade or so. In this case, protecting wealth made more sense, but people of today are living much longer and the money that they have saved has to go a lot further. Instead of considering your 20-year-old children who still need to study and start a family, many people live well into their 70s, 80s and even 90s. By the time they pass away, their children are often well into their 40s and able to support themselves. Instead of being primarily focused on the amount of wealth that their children will inherit, the average middleclass person should be much more concerned with issues such as whether their wealth will be able to support them until they die. There are instances where people have accumulated an enormous amount of wealth over their lifetime and need to preserve it for future generations, but most people don’t have this problem. If your estate is big enough, then you could still benefit from having a trust, but this only constitutes a small portion of the South African population. The reason why the rest of the people should think twice before establishing a trust is because with recent law changes the use of a trust may increase the tax liability. Tax issues are either misguided or no longer relevant A trust is taxed significantly more than an individual would be taxed. While there are options available to avoid being taxed heavily, this doesn’t necessarily solve the problem or give effect to the original estate plan. The law in regards to estate duty and tax have changed significantly over the past decade, and some of the standard estate planning principals are no longer relevant. We no longer need the trust to secure the full benefits of the estate exclusions. There is a cost to setting up and continuously administering the trust, as well as a cost to getting the assets into the trust. If the founder of the trust ends up using the value attributed to the trust for his/her retirement years, then the trust has little value in estate planning. With the more recent tax law amendments that focus on the loans created to facilitate transferring the assets to the trust, there is an additional tax liability. Either the loan is interest free, or low interest, which results in a deemed donation each year; alternatively charging the required interest on the loan results in the increase in the loan value (effectively increasing the estate value) as well as increasing the founder’s taxable income with the interest earnings. The current challenge most who have trusts setup to hold assets have, is how to get rid of the contra loan accounts. It is important to note that a trust is not only used for tax planning purposes, as the trust could still be an effective way to protect your assets. Retief concludes by saying that anyone considering setting up a trust, and individuals who currently have assets in a trust, need to be asking their financial advisors a few critical questions such as: is there really value in having a trust and should a restructuring of the trust be considered to derive more benefit from it. Having a trust just because it’s something that made financial sense in the past doesn’t mean that it’s a good idea for you today. There are a lot of repercussions involved in setting up a trust, including the cost incurred to set it up and manage it. Understanding how big your estate is really going to be when you pass and how exactly you and your beneficiaries will benefit from the trust is your first step in the right direction. For the average citizen, however, focusing on a good retirement plan is much more important than being hell-bent on having a trust. ENDS MEDIA CONTACT: Idéle Prinsloo, 082 573 9219, idele@thatpoint.co.za, www.atthatpoint.co.za For more information on SAIPA please visit: Website: www.saipa.co.za Twitter: @SAIPAcomms LinkedIn: South African institute of Professional Accountants Company Facebook: South African Institute of Professional Accountants Author: Ettiene Retief, Chairperson of National Tax and SARS Committee of the South African Institute of Professional Accountants
Finance Minister Malusi Gigaba will be delivering his inaugural Medium-Term Budget Policy Statement (MTBPS) on 25 October. His approach to the fiscal challenges facing the country will be vital to quell concerns about the economy, the perceptions of corruption and wasteful expenditure. He must be able to convince international markets that all is under control. Current economic climate In February government expected the economy to grow by 1.3 per cent for this year and 2 per cent in 2018 as economic conditions strengthen. It raised taxes in order to fund existing spending programmes. The then minister of finance admitted that raising taxes when the economy is struggling is undesirable, but unavoidable in the current fiscal circumstances. The economy contracted for two consecutive quarters and only came out the recession in the second quarter of 2017 when growth of 2.5% was recorded. However, if the first half of 2017 is compared with the first half of 2016, the growth rate was 1,1%, according to Statistics SA. Since the February budget there has been negative economic indicators. Employment figures have gone down, with many more retrenchments in the pipeline that may translate into less Personal Income Tax collections. People are less inclined to shop when they are unemployed and lack cash-flow, which translates in less Value-Added Tax. Very few corporates are making huge profits, which may result in less Corporate Income Tax collections. Projected tax income for the 2017-18 fiscal year is R1.41bn and the proposed expenditure R1.56bn. The minister will use his policy statement to indicate to which extend these figures will have to be adjusted. Government debt had been around 50.7% of Gross Domestic Product in February – which amounts to more than R2 trillion. Expectations vs reality Tax collections in all three the major tax types (Personal Income Tax, Value Added Tax and Corporate Income Tax) are expected to be lower than expected in February. South Africans will need clarity on how Minister Gigaba is going to adjust his budget and whether he will be mindful of the additional cost of increased borrowings to make up for the anticipated tax collection shortfall. They will also need assurance that government will keep expenditure in check, and even cut costs at non-performing entities. It is essential that SARS remains efficient and robust in its collection and administration of the tax base. However, there are concerns that there is slippage in tax compliance and that taxpayers can expect more aggressive treatment from the taxman. The recently concluded Special Voluntary Disclosure Programme is expected to widen the tax base. The minister will most probably offer some clarity on the number of successful applications and the quantum of the previously undeclared assets that has been brought into the tax net. Regaining taxpayer trust The lack of accountability in terms of wasteful and fruitless expenditure continues to erode tax morality in South Africa. In order to regain the trust of taxpayers they will have to be convinced that expenditure incurred by government is “reasonable”. SARS is under pressure to collect tax revenues, with media reports suggesting that it may already not be able to meet target this year. The procedures followed by SARS to collect and administer the tax system must be seen to be reasonable. More aggression is likely to lead to more resistance from taxpayers. It is understandable that government has certain obligations and that it has to fulfil its mandate in terms of efficient delivery of services such as health, safety and education. However, when people continue to see reports of corruption and wastage without any accountability they tend to become more reluctant to part with hard earned money. The minister has a difficult task on hand. He has to comfort all South Africans, the rating agencies and international markets that we are on the right track. Purpose of the MTBPS National Treasury states that the MTBPS is a government policy document that communicates to Parliament and the country the economic context in which the forthcoming budget (February 2018) will be presented. It also sets out the fiscal policy objectives and spending priorities over the three-year expenditure period. The policy statement is an important part of South Africa’s open and accountable budget process. The question stands wheter the minister will stay on the course set by the previous minister Gordhan, or will he present revised fiscal policy objectives and spending priorities going forward. It offers the minister the opportunity to inform Parliament and the citizens of South Africa what progress has been made in terms of tax collections and whether the South African Revenue Service (SARS) is on track with collecting the amount that was budgeted for in February, and expectations of potential tax increases to come. ENDS MEDIA CONTACT: Idéle Prinsloo, 082 573 9219, idele@thatpoint.co.za, www.atthatpoint.co.za For more information on SAIPA please visit: Website: www.saipa.co.za Twitter: @SAIPAcomms LinkedIn: South African institute of Professional Accountants Company Facebook: South African Institute of Professional Accountants  The new tax on sugar-sweetened drinks will have to form part of an integrated programme to change consumer behaviour and subsequently play an important role in addressing a range of health issues, says Ettiene Retief, Chairperson of the National Tax and SARS Stakeholders Committees, South African Institute of Professional Accountants (SAIPA).
Retief’s statement comes in light of Finance Minister Pravin Gordhan’s National Budget Speech that is to take place on 22 February wherein it is anticipated that he will confirm the implementation of the widely-debated proposed sugar tax. “The tax on its own will raise a relatively small amount of money for the fiscus and would be unlikely to yield the full extent of the expected change in consumer patterns on its own. To do that, the government needs to implement a supporting educational and health awareness programme,” Retief says. However, it is important to note the health issue not only refers to obesity, but also diabetes, heart decease and tooth decay. Substitute drinks Global experience with tobacco and alcohol shows many variables have to be taken into account, including whether there is an attractive substitute product. In this case, mineral waters and sugar-free beverages are readily available. However, some consumers may simply shift to cheaper sugar-sweetened brands, highlighting the need for a complementary public-education and awareness programme. Recently, the experience of the Californian town of Berkeley has shown that a general excise tax combined with a public-awareness campaign can yield good results. After a “soda tax” was implemented, there was a 21 percent drop in the consumption of sugary beverages, and a 63 percent increase the drinking of bottled or tap water. Only 2 percent of those surveyed said that they had begun shopping in nearby cities where the tax was not implemented. Redeployed versus unemployed The argument is often made that reduced consumption will inevitably mean the loss of jobs along the beverage supply chain. However, the quantum of lost jobs is hotly disputed, Retief points out. “In addition, if consumers shift to sugar-free beverages or mineral water, it seems likely that workers could simply be redeployed—especially as most manufacturers of sugar-based beverages also have well-established low-calorie or water alternatives. But even if a few jobs are in fact lost, a sensible health policy is a moral imperative especially when it comes to protecting children.” A more aggressive argument could be that a sugar tax could open up opportunities for smaller, local companies to supply alternative beverages. This would potentially mean the creation of new jobs and a boost to empowerment. Poor health equals high costs Another point to keep in mind is the high cost to the country of the diseases and chronic conditions linked to excessive sugar intake. This includes direct cost to the health care system, plus lost productivity. World Health Organisation figures indicate that 1.5 million people died in 2012 as a result of diabetes and other chronic conditions linked to high-sugar diets. More worrying, it believes that 42 million children under the age of five are obese, a huge increase from 11 million only 15 years ago. The Berkeley study also revealed that the “soda tax” had the most impact on the lower income groups and children. ENDS MEDIA CONTACT: Idéle Prinsloo, 082 573 9219, idele@thatpoint.co.za, www.atthatpoint.co.za For more information on SAIPA please visit: Website: www.saipa.co.za Twitter: @SAIPAcomms LinkedIn: South African institute of Professional Accountants Company Facebook: South African Institute of Professional Accountants  Reducing greenhouse gases is a commitment under the Paris Agreement, but the proposed carbon tax will not yield the desired results on its own. The delay in implementing the proposed legislation provides a great opportunity to come up with a better solution.
Author: Ettiene Retief, Chairperson of the National Tax and SARS Stakeholders Committees, South African Institute of Professional Accountants Late last year, the National Treasury published the results of a study on the likely effects of the proposed new tax designed to reduce South Africa’s emission of greenhouse gases—the so-called carbon tax. Perhaps unsurprisingly, the study concluded the proposed tax would reduce our emission of greenhouse gases (33 percent by 2035), without significant impact on economic growth or jobs. However, the Treasury report has been criticised and claimed as ‘fatally flawed’. The introduction of carbon tax is not surprising, considering the World Bank estimated that 15% of global emissions are subject to a tax or carbon pricing as at 2016. The intended implementation date of the carbon tax has been postponed till early 2018. Understandably, the implementation of a carbon tax is complex, and needs to cater for many market segments. The largest contributor to carbon emissions is the burning of fossil fuels. While it is intended that the carbon tax is not to affect the consumer of electricity until 2020, thereafter the costs will most likely be passed on to the consumer. Without a focus on alternative means to generate electricity, the consumer will have no choice than to either pay more, or use less. The ideal model is where carbon tax incentivises companies to change behaviour and consumption patterns, effectively becoming less reliant on fossil fuels. At the moment there is little alternative available, and the come at a cost. Why more time is good Firstly, any modelling exercise is by definition limited by the assumptions on which it rests and the data projections it uses. The problem is exacerbated by the highly-entrenched orthodoxies that characterise all thinking about climate change—objectivity, it often seems, has been a casualty. An equally compelling reason for spending a little more time and thought on formulating a strategy is the experience of other countries is mixed, at best. In Australia, for example, it appears as though confusion reigns despite emissions having been reduced. In 2014, a carbon tax was repealed in favour of an emission Reduction Fund, and the Environment and Energy Minister, Josh Frydenberg, announced on 5 December 2016 his department would undertake a review of the whole matter. Among the concerns, it seems are the impact on power generation that has affected employment not only in the energy sector, but in energy-intensive industries. Similarly, an academic study by two researchers at Statistics Norway shows that high carbon taxes in that country have actually yielded only “modest” reductions in gas emissions. The study notes: “This surprisingly small effect relates to the extensive tax exemptions and relatively inelastic demand in the sectors in which the tax is actually implemented. The tax does not work on the levied sources, and is exempted in sectors where it could have worked.” France has recently indicated that it is dropping plans to introduce a carbon tax for the moment, citing concerns about its ramifications and even constitutionality. Supporting measures I would argue that we should draw two main conclusions from all of this:
The aim of carbon tax is to reduce the amount of emissions created, and not mainly to expand the tax base.
The most significant impact could be made if we focus on shifting our reliance on burning fossil fuels to keep the lights on. South Africa has made commitments to reduce its greenhouse-gas emissions. The real question is how best to live up to those commitments. Hopefully the Budget Speech will indicate that we will use the delay in implementing our carbon tax wisely to come up with an integrated strategy—addressing the issues identified. ENDS MEDIA CONTACT: Idéle Prinsloo, 082 573 9219, idele@thatpoint.co.za, www.atthatpoint.co.za For more information on SAIPA please visit: Website: www.saipa.co.za Twitter: @SAIPAcomms LinkedIn: South African institute of Professional Accountants Company Facebook: South African Institute of Professional Accountants |
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