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:
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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:
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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:
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Twitter: @SAIPAcomms
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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:
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Twitter: @SAIPAcomms
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Amid recent media reports of the South African Revenue Service uncovering a trend of non-compliance among tax practitioners in the country, the South African Institute of Professional Accountants (SAIPA) has urged its tax practicing members to annually submit their tax clearance certificates, along with a declaration that they have not been found guilty of any criminal offences; and comply with the required continuing professional development (CPD).
 
SAIPA Technical Executive Faith Ngwenya says failure to comply with these requirements means the Institute will not be able to activate a practitioner as a member, thus not being able to service their clients for tax purposes.
 
The Tax Administration Act (TAA) requires since 2013 that tax practitioners register with a recognised controlling body and the South African Revenue Service (SARS).
 
To register a practitioner must belong to or fall under the jurisdiction of a recognised controlling body, have the minimum qualifications and experience set by the controlling body and have no criminal convictions for certain offences set out in the act.
 
Threat of deregistration
National Treasury proposed in the February 2018 budget an amendment to the TAA to have non-compliant tax practitioners deregistered. Treasury said if a practitioner has not complied on a continuous or repetitive basis and does not correct their behaviour after being notified by SARS, they will be deregistered as a practitioner.
 
In recent weeks, SARS held a meeting with the leadership of the recognised controlling bodies and proposed a two-day workshop to address some of the issues raised during the meeting, including the deregistration of tax practitioners, says Ngwenya.
 
“Deregistration is not happening yet, and the process of how it will be done must still be developed.”
 
Whilst it remains unclear how many of our members are non-compliant from the SARS side, SAIPA has already excluded +/- 1 000 members from the list of tax practitioners in good standing as they have not met our annual compliance test which includes payment of their subscription fees, tax clearance status, criminal record declaration and compliance with CPD.  
 
Impact of deregistration
A member who has been deregistered or is not activated as a member of SAIPA due to non-compliance will not be able to offer tax services.
 
One of the complaints that SAIPA receives from members involves the withholding of taxpayer profiles by the former tax practitioner when a new one has been engaged by the taxpayer. Ngwenya adds that the Institute’s legal and compliance division will investigate these complaints.
 
She notes that practitioners are required to release the profile once the taxpayer has switched to a new practitioner. In some cases, they decline to release the taxpayer’s profile due to, amongst others, alleged non-payment for services rendered. This process can be extremely frustrating for taxpayers.
 
Area of concern
Ngwenya says although SAIPA and other recognised controlling bodies are required to meet stringent registration requirements, tax practitioners who are not registered still slip through the system.
 
Some tax practitioners can “circumvent” the system by registering multiple profiles pretending to be an individual filing his own return, or a company doing its own submissions.
 
“We have raised the issue and it has to be addressed by SARS otherwise it simply makes a mockery of the tax practitioner registration process.”
 
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
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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