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

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

Author: Darren Gorton, Finance Executive at the South African Institute of Professional Accountants (SAIPA)
 
Cryptocurrencies are dominating the media. This one has collapsed, that one is on the rise, and a new one is around the corner. Their flavour isn’t quite as piquant today as it was yesterday thanks to fraud, an upsurge in Initial Coin Offerings (ICO) and the challenges that face its legislation and regulation across country and government.
 
In April the South African Revenue Service (SARS) announced that it will be treating cryptocurrencies using normal income tax rules. Affected taxpayers will, therefore, be expected to declare cryptocurrency gains or losses as part of their taxable income in the tax year in which it is accrued.
 
Cryptocurrencies are also often confused with blockchain which is a complex, layered technology that provides the backbone of cryptocurrency, but has the potential to deliver so much more to enterprise, industry and the consumer.
 
Cryptocurrencies may be getting all the airtime, but blockchain is the underlying technology, and this application of the technology is only a small part of what this technology can enable. Blockchain itself is largely unexplored, even though it has been around for nine years now.
 
To fully understand the potential of blockchain, it’s worth understanding precisely what it is and what it is not. According to Deloitte, blockchain is defined as a ‘digital and distributed ledger of transactions, recorded and replicated in real time across a network of computers or nodes’. It is already being used as a way of replacing databases thanks to its secure, centralised network – taking the vulnerable database of today and turning it into something that can be trusted.
 
If a bank runs its own database, they can change information without anyone knowing. With blockchain, it is impossible to do so without leaving a digital trail. This means it provides a system that all parties can trust inherently, and the applications of this high level of transparency and security aren’t limited to just the finance industry.
 
Removing the middleman
By implementing blockchain, the business can cut out the middlemen who originally provided the verifications needed for transactions. There is even talk of it being implemented in security exchanges where the exchange is currently the middleman between the investor and the company they want to invest in. While the technology may not have an immediate and profound impact on the man on the street, for the accountant it potentially offers an additional layer of trust to the numbers.
 
Blockchain provides the certification between two parties in a transaction, acting as the verification in itself. There is increased emphasis on the validity and accuracy of the information. The Professional Accountant (SA) can lean on the security afforded by blockchain to focus on adding value to the enterprise across financial reporting, analysis and insights.
 
Of course, this does mean that the accounting industry needs an understanding of the technology, how it supplies the verification and the reasoning behind its security and validity.
 
Businesses are set to adopt this technology, of that there is no doubt. It won’t happen overnight, and the middlemen are going to push for a lot of legislation to delay the advance of blockchain technology as far as possible or even make some of the applications unlawful. It is a battle that technology will most likely win in the long run, and the Professional Accountant (SA) needs to know how this will impact on clients and the industry they are working in.
 
For the Professional Accountant (SA), the pressure is on. By understanding how blockchain works and the impact it has, they can provide clients with exceptional insight into everything from the latest regulations to innovative applications.
 
The circle of success
In South Africa, we still have a way to go, but that doesn’t mean that the Professional Accountant (SA) can put their head in the sand and ignore it. As cryptocurrency fluctuates and organisations such as the Reserve Bank, SARS and other government departments implement regulation to manage the movement of money around the globe, blockchain is going to evolve at a rapid pace.
 
Another aspect to consider is information. The POPI Act and other similar forms of legislation that control information are set to impact on the development and adoption of blockchain. It connects to the digital lives that people are leading, the regulation around what companies can or cannot maintain, and how blockchain can support compliance.
 
It is difficult to say how blockchain and cryptocurrencies are going to play out. The Professional Accountant must be aware of how cryptocurrencies are declared in business records and monitor regulation. They have to know what to look out for, the risks that are involved and the impact on the business. And they need to recognise that these technologies aren’t going to leave any time soon.
 
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 Africa compared favourably in the World Bank and PWC’s recently released report titled Paying Taxes 2018, coming in 46th overall. However, in respect of time to complete a company income tax audit (31.6 weeks), the country falls short of regional and global averages (21.8 weeks and 27.3 weeks respectively).
 
The report assesses tax systems across 190 economies, comparing each by region and globally. It focuses on company taxes with the hope of informing policy decision making and tax reform.

Correlation with the Tax Ombud report
“The World Bank report is an excellent indicator for South African policy makers, especially if year-on-year rankings are considered,” says Ettiene Retief, Chairperson of National Tax and SARS/National Treasury Stakeholders Committees of the South African Institute of Professional Accountants (SAIPA) and Centre of Tax Excellence.
 
Retief advises that the report should be contemplated in conjunction with the Office of the Tax Ombud’s annual report, which recognises specific problems in the local tax regime and recommends corresponding solutions. “Although the reports are significantly different in purpose and scope,” observes Retief, “it’s encouraging to note that their finding correlate well, providing confidence in the World Bank’s metrics.”

Foreign trade
South Africa ranks well in Africa and positions 99th out of the 190 global participants in the study. Retief praises the country’s good performance but notes that the report doesn’t cater to some real-world complexities that could impact the tax cycle significantly. An example is PWC’s case study business used in the report, which doesn’t engage in foreign trade.
 
“In the digital era, even small companies actively pursue cross-border trading, especially in a poor economy because it’s an obvious way to improve income,” says Retief. “For large concerns, the frequency and complexity of foreign deals, sometimes between several multi-national parties, are likely to increase compliance time substantially and attract additional audits and need for supporting documentation that delays the process.”

Out-of-scope considerations
The document also doesn’t account for external impediments, like evolving legislation and the newly introduced country-by-country reporting aimed at combatting base erosion and profit shifting. “Although commendable, the initiative will no doubt increase the compliance burden,” says Retief.
 
A major oversight in the report is that it mainly measures the compliance cost in regards to filing returns and addressing tax audits, but fails to address the additional costs incurred to manage tax risks and compliance. Companies incur costs for systems and services that enable them to meet their reporting and compliance obligations, and the true cost of cash flow is not measured in regards to delayed refunds.
 
The cash-flow issue in some cases are not caused by SARS, such as the case where a company invoices a government department for work performed, the VAT is payable when the invoice is issued, but the government department delays payment.  “The total cost of tax compliance must be taken into account because it’s a vital factor in judging real efficiency,” asserts Retief.

SARS accountability
Lastly, Retief says that although a tax authority needs immense power and authority to meet its mandate to collect tax revenues for funding its country’s expenses, it must be held to the same efficiency standards as the taxpayer.
 
“It’s not unheard of for companies to wait many months for a refund to be processed, many turning to the Tax Court or Tax Ombud for relief. The cost in cash flow is a major hindrance to business.” He highlights calls for SARS to develop a concrete service charter and commends the Office of the Tax Ombud’s initiative to identifying the SARS’ systemic problems. “This would improve our tax efficiencies significantly.”
 
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 Accountant

Author: Sibusiso Thungo, Tax Specialist at the South African Institute of Professional Accountants
 
The eagerly awaited report by the Office of the Tax Ombud on the delay in the payment of refunds by the South African Revenue Service (SARS) is a victory for individuals and companies taxpayers.
 
The Ombud initiated its investigation after receiving 500 complaints relating to the delay in payments within a period of six months. It found the number of complaints sufficient to initiate the investigation into the systemic nature of the complaints.
 
SAIPA praises the legislature for recently amending the Tax Administration Act (TAA) to allow the Ombud’s office to investigate complaints which indicate that there is a systemic problem.
 
The Ombud’s report found the current system allows for SARS to unduly delay the payment of verified refunds to taxpayers in certain circumstances. Taxpayers argued that, in this respect, the tax collection system was being implemented unfairly by SARS.
 
This resulted in financial hardships to them and, in some instances, the near collapse of their businesses; in others, loss of jobs ensued.
 
Complaints by taxpayers are not new
SAIPA welcomes the report, although the issues raised in the report are not new. It has, however finally been addressed by the Ombud. Industry bodies such as SAIPA, the South African Institute of Chartered Accountants (SAICA) and the South African Institute of Tax Professionals (SAIT) have raised these issues with SARS in the past.  Their concerns were never sufficiently addressed as they should have been.
 
The Ombud’s report should serve as a lesson to SARS to take matters - which are raised with them - seriously and not to wait until it becomes necessary to resort to the Ombud to investigate its conduct. This is an extremely important report, and the findings and recommendations cannot be ignored.
 
The complaints have been raised by taxpayers who have endured hardship and who took refuge with the Ombud to resolve the matter. The fact that some taxpayers did not want to be identified for fear of intimidation does not take away from the fact that their complaints were justified.
 
The report clearly illustrates that SARS has to improve its systems and that some of its internal processes will have to be revisited. SARS is being guided by the TAA and it is clearly in a position to apply the act correctly. The Ombud found that SARS “acted outside of the legal framework” in some instances, which caused financial hardship to taxpayers. The financial hardship was found to be “drastic’’ in some instances due to SARS failure to pay the refunds on time.
 
Matters of concern
One of the practices which was highlighted in the report referred to the raising of assessments to reduce the overpayment of tax (credits) to zero for the 2016 and 2017 financial years.
 
The Ombud said the information provided by SARS did not give a complete picture of the full financial impact this practice has had on refunds. The practice of raising assessments solely to absorb credits simply because a taxpayer has not explained an overpayment is of grave concern.
 
Another complaint which has been raised on numerous occasions related to the verification of bank details. Although the verification has been concluded, SARS still waited 21 days before paying legitimate refunds.  As much as we support any SARS fight against fraud, however using unfair practises cannot be allowed to continue.
 
SAIPA finds it concerning that in some instances SARS did not respond or provide comments to the office of the Tax Ombud, and in other instances they had concern with proving responses on the findings related to the complaints wherein no illustrated cases were found.
 
It would have been prudent for the tax authority to respond or to find solutions to the issues raised by the Ombud. In my view SARS has been more defensive in its responses, than trying to resolve the issues. The report is clearly not about pointing fingers, but to improve current systems and to resolve issues which have been raised in many instances by different stakeholders and taxpayers.
 
True independence of Tax Ombud
This investigation has offered taxpayers a much better understanding of the role of the Tax Ombud. This has without a doubt confirmed the independence of Tax Ombud Bernard Ngoepe and his office.
 
The outcome will surely boost taxpayers’ confidence in the office. It will also boost their trust that they are being protected.
 
It is a victory for taxpayer and for companies who have been placed in financial distress, despite being complaint. The report ensures the fair treatment of taxpayers.
 
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