 Authored by: Thomas Lobban, Jean Du Toit & Jonty Leon from Tax Consulting SA
This week, on 26 November 2019, the National Assembly passed the latest tax bills, which is set to be promulgated by the President after it has been passed by the National Council of Provinces. On the face of it, some concessions have been made for individual taxpayers, but these offer cold comfort in the bigger scheme. Proposed Amendments Before we get to the truly profound implications, it is important to note the following amendments:
Tax Man Always Searching for His Pound of Flesh At first glance, it appears that there are no profound amendments to the Income Tax Act or the Tax Administration Act that would raid the pockets of taxpayers, to generate additional revenue. This is peculiar, since the prevailing budget deficit is a massive elephant in a room with grim economic prospects and a junk credit rating. However, taxpayers must not be fooled. In the current economic climate and with SARS so far behind on collection, it is unlikely that the 2019 legislative cycle would not have been put to good use the drum up some more money. Government is smart enough to understand that big changes cause controversy, as we have seen with the VAT rate increase or the amendment to the exemption on foreign employment income. With no such amendments, were taxpayers truly given a tax break in light of the current economic landscape? No Change Means More Revenue In truth, the biggest change by far is not a change at all, nor is it actually found in the Income Tax Act or Tax Administration Act. The Rates and Monetary Amounts and Amendment of Revenue Laws Act, 2019 proposes no amendment to the tax brackets which prescribe the rates of tax applicable to individual taxpayers. In a country with a relatively high inflation rate, this is a problem, since the salaries of employees generally increase in line with inflation. Where the tax brackets do not increase correspondingly, this results in so-called “bracket creep”. In real terms, while this means that individuals are technically earning more, they are actually taking home less pay each month as compared to the previous year. In fact, in many cases taxpayers may be pushed into a higher tax bracket. The upshot is the taxpayer’s pay increase is wiped out by additional taxes. It should also be mentioned that this is the second year in a row that the tax brackets have not been increased, which means that taxpayers will need to further reduce their cost of living for another year, in order to make ends meet. While this will not necessarily affect lower income earners, it will certainly have a significant impact on the already overburdened taxpayers in the middle- and higher-income brackets. This also affects those who will be withdrawing lump sum benefits from their pension interest. In this case, the special tax rates applicable to these amounts also remain unchanged. This means that these persons will be forced to enter into retirement with less cash available to defray their cost of living – an unfortunate consequence of bracket creep. Say Good-Bye to South Africa’s High Earners The long-term effect of these changes (or lack thereof) can only realistically be determined over time. This is an effective measure to generate revenue over the short term, but the question must be asked; how much financial constraint taxpayers are willing take before it becomes unsustainable and individuals simply decide to leave South Africa? We have already seen a massive jump in South Africans deciding to leave the tax net by formally noting their non-resident status by financially emigrating from South Africa. As it stands, National Treasury is already relying heavily on the higher earning segment of the individual tax base and measures like these forces the hand of taxpayers who are already contemplating their departure. Ultimately, we lose important taxpayers and their descendants to the tax base permanently, which leads to less revenue for government. Cunning as it may be, it would seem that government’s band aid is a temporary fix that will exacerbate a far larger problem. ENDS MEDIA CONTACT: Rosa-Mari Le Roux, 060 995 6277, rosa-mari@thatpoint.co.za, www.atthatpoint.co.za ABOUT Tax Consulting SA: Tax Consulting SA offers a streamlined service in the calculation and filing of individual income tax returns, provisional income tax returns or any other more complex individual tax relate matters. Our highly qualified team of Tax practitioners are registered with SARS under controlling body of the South African Institute of Tax Practitioners (SAIT). As tax specialists, we remove the burden from clients to keep their tax affairs in good order, achieving optimal tax savings while ensuring full compliance. For more information on Tax Consulting please visit: Website: http://www.taxconsulting.co.za/ LinkedIn: Tax Consulting South Africa Facebook: Tax Consulting South Africa
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 Written by: Jonty Leon, Financial Emigration Legal Manager
SARS Views – Not a Law Unto Itself It is an unfortunate sight when tax advisors from varied backgrounds, but more so those who do not have a legal background, turn a blind eye to South African tax legislation and rather submit to the ever-dominating “views” of SARS. Arguing with such an advisor who uses “SARS said…” or “SARS’ interpretation note…” is like screaming into a black hole. Unlike for practicing attorneys, who are officers of the Court and must serve the Court to come to the correct decision; the tax practitioner plays a different role. SARS’ views are unavoidably one-sided, and the ethically correct space for a tax practitioner to operate is to provide balance to the equation, whilst always ensuring full compliance. Legally Blind Tax Advisors When a tax advisor only makes use of the views, or releases of SARS to determine what is best in one’s situation, which occurs more often than we like to believe; it generally ends with the taxpayer inadvertently and unnecessarily compromising their position, in favour of SARS. A true tax advisor must read the law. If this is not the starting point of their advice, there is already a problem and the advisor sets the client on a trajectory of paying too much tax or selling a tax service which is not really needed. With the correct interpretation of the law, the tax advisor has a chance. Without it, SARS reigns supreme, swinging its sceptre in favour of its own agenda. The issue with a tax advisor taking the words of SARS as gospel, is that SARS is a litigating party to any dispute with a taxpayer. It is therefore inconceivable that SARS’ views on legislation, “must be correct”. SARS has one job, to collect as much revenue from the taxpayer as possible, and not to provide ways for the taxpayer to reduce their liability. For some reason, tax advisors seem to forget this and play straight into the field of SARS’ collection priorities. The Full Might of the Letter of the Law Our Constitutional Court has clearly stated that SARS’ view cannot be relied upon, and specifically refers to SARS’ Interpretation Notes. In the ConCourt case Marshall and Others v Commission for the South Africa Revenue Service, the Court stated: “Why should a unilateral practice of one part of the executive arm of government play a role in the determination of the reasonable meaning to be given to a statutory provision?...In those circumstances it is difficult to see what advantage evidence of the unilateral practice will have for the objective and independent interpretation by the courts of the meaning of legislation, in accordance with constitutionally compliant precepts. It is best avoided.’ This Judgment is damning against SARS, and goes on to state, “Deference to an administrative body’s own interpretation of the meaning of a statute which it is responsible for implementing should be avoided, particularly when the administrative body is party to the litigation.” The Legally Literate Tax Advisor With the law in hand, a tax advisor that has been to Tax Court is an invaluable weapon. Having stood toe-to-toe with SARS on many occasions, and having insight into their strengths and weaknesses but more importantly understanding the legal obligations to win a case, becomes the only reliable stronghold to a daunting fight against the great collector, SARS. In terms of section 102 of the Tax Administration Act No. 28 of 2011, the onus of proving, “that an amount, transaction, event or item is exempt or otherwise not taxable”, falls on the taxpayer. Thus, the taxpayer bears the onus of proving that they are “innocent” on a balance of probabilities. Our Court’s in a decision by the Special Court in ITC 43, held that, “in the case of all things being equal we are bound to decide in favour of the Commissioner.” This means that the starting point for any tax planning or compliance advice, including SARS disputes, should be whether the taxpayer has passed the burden of evidential proof. The Law will Seal the Deal It is so important to have a legally literate tax advisor with tax court experience, who is capable and willing to use all available legal weaponry in their arsenal to advance your case. More importantly to ensure that the advice given to you prior to you even needing to step foot in a Court, is holistic and grounded in law, not on SARS’ opportunistic interpretation of the law. The next time you get an audit finding or your tax advisor hammers on “SARS will say this” and “SARS will say that”, be mindful of what the Constitutional Court has said about the views of SARS, that they ‘best be avoided’. A Tax Advisor is there to serve the taxpayer’s interests, not the interests of SARS. ENDS MEDIA CONTACT: Rosa-Mari Le Roux, 060 995 6277, rosa-mari@thatpoint.co.za, www.atthatpoint.co.za ABOUT Tax Consulting SA: Tax Consulting SA offers a streamlined service in the calculation and filing of individual income tax returns, provisional income tax returns or any other more complex individual tax relate matters. Our highly qualified team of Tax practitioners are registered with SARS under controlling body of the South African Institute of Tax Practitioners (SAIT). As tax specialists, we remove the burden from clients to keep their tax affairs in good order, achieving optimal tax savings while ensuring full compliance. For more information on Tax Consulting please visit: Website: http://www.taxconsulting.co.za/ LinkedIn: Tax Consulting South Africa Facebook:Tax Consulting South Africa  The impact of the future tax treatment of income earned by South Africans while they are living and working abroad has been widely publicised.
It has also contributed to the first publication of its kind that deals with the tax considerations of South Africans abroad or those with international interests, and foreigners working and living in SA. LexisNexis’ new publication titled, Expatriate Tax : South African Citizens Working Abroad and Foreigners in South Africa, is authored by the independent specialist tax practice Tax Consulting South Africa and explores the fiscal legislation and the approach to tax law from a practical perspective. In his foreword Judge Dennis M Davis, Chairman of the Davis Tax Committee and Judge President of the Competition Appeal Court, says expatriate tax planning and compliance necessitates an understanding of South African tax law, but also of international tax law, and that the publication provides a clear understanding of the tax consequences of migration. Tax Consulting is of the view that when there is any discussion around expatriate tax, one cannot have it without also having the discussion around work visas, residency permits, and citizenship considerations.The book devotes a whole chapter on these issues. Co-author and lead, tax technical at Tax Consulting Jean du Toit says it is quite apt for their firm to have written the book at this time. The way that expat tax is going to be dealt with is set to change on 1 March 2020. The current foreign income exemption will from then on be capped at R1million and calls for proper tax planning going forward. The textbook is written not only for technocrats, but also for officials of the South African Revenue Service, employers, human resources specialists and even for laymen who wish to understand their tax obligations. “The book is quite technical but it is balanced with practical examples and explanations about the SA tax system. It gives a lot of context to some of the provisions in the legislation and why it was enacted.” Du Toit says the book follows a logical flow as it starts with an overview of the South African tax system and how certain sections and provisions have to be interpreted. It also covers specific areas that goes hand in hand with emigration and immigration namely work visas, remuneration strategies, exchange control and how it will affect your tax obligations. “It gives clear guidance on what to do when people are planning to leave the country, if they have already left and if they are coming back. It is important for any taxpayer to understand their tax obligations as they are ultimately responsible for their own affairs despite having a professional assisting them.” Marisa Jacobs, director of Xpatweb, says there has been a lot of talk in the market and at the launch of the book, hosted by the British Chamber of Business in Southern Africa, of long processing times and inconsistencies in terms of the requirements for visa processes when dealing with expatriates. However, they follow a proactive approach and are not experiencing these heavy delays. “Where an immigration provider is prepared and engages correctly (with the Department of Home Affairs and the various embassies) the delays are not so common.” She says they have included work visas and residency permits in the book because when having a discussion around (expat) tax, you cannot have it without also having a discussion around visas and permits. “The wrong decision on a work visa category can have a devastating financial impact for a company or an individual where you trigger tax and exchange control residency too soon.” The critical skills list, which has been hotly debated after a draft list was leaked, is expected to be published by April next year. Xpatweb runs the annual critical skills survey (which will close on 27 November) and the results will be submitted to the department before the list is finalised. Jacobs acknowledged the work that has been done by the department to reduce turnaround times and says there is “significant show” that they are improving their efficiency. ENDS MEDIA CONTACT: Rosa-Mari Le Roux, 060 995 6277, rosa-mari@thatpoint.co.za, www.atthatpoint.co.za For more information on Tax Consulting please visit: Website: http://www.taxconsulting.co.za/ LinkedIn: Tax Consulting South Africa Facebook:Tax Consulting South Africa  The role of job evaluation, also referred to as Job grading is still poorly understood in the corporate sector.
Job evaluation give companies the information they need to fairly, accurately and competitively determine the salaries of staff - amongst many other functions, says Janine O’Riley, Psychometrist & Reward Specialist at Remuneration Consultants. “Job evaluation is the internal currency that a business use to determine how they remunerate staff. All employers must implement very specific measures to achieve equal pay for equal work, according to section 6(4) of the Equity Act. Non-compliant employers are at risk of being liable for prosecution at the CCMA should they not be able to provide sufficient proof of compliance or have a plan in place to correct any inequalities. Companies are also legally required to have documentation of pay comparisons and explanations of pay differentials within their company,” says O’Riley. Benefits of job evaluation O’Riley says that job evaluation is crucial for internal and external parity and inform companies with everything from recruiting to remuneration. Job evaluation also assists with organisational design. This helps companies determine which jobs are needed and map out where these jobs will fit into their organizational chart. “Logistics surrounding recruiting needs and reporting are easy to plan and plot when employees’ jobs are evaluated. This information also enables companies to be proactive about succession planning and the career development of their staff,” says O’Riley. When the jobs are evaluated, internal parity can be ensured by streamlining the various departments and business units for jobs on a similar level with similar grades. Once internal jobs have been evaluated, survey/market data (benchmarking data) can be obtained from a provider to compare internal salaries with the rest of the market, enabling a company to benchmark salaries in the industry, ensuring external parity. Benchmarking your employee salaries will inform employers whether individuals are underpaid, overpaid or paid according to market salaries. This in turn will inform employers how to go about their talent management and focus on top talent - how they are remunerated and planning on how to retain this key talent. “Any successful business must have competitive PayScale’s that is comparable with the local labour market and fair to all employees,” says O’Riley. Your job evaluation and benchmarking data will serve as initial inputs for development of the company PayScale’s and year on year updating thereof. Job evaluation methodologies Various job evaluation methodologies can be used. Some providers have their own inhouse job evaluation methodologies that can be purchased from them. Remuneration Consultants uses the Paterson evaluation methodology, which is easy for everyone involved in the job evaluation process to understand, non-discriminatory and public information – so in essence a more cost-effective option. There are two ways to do job evaluation with the Paterson methodology. One is a desktop-based evaluation session that uses the job profile and other informative company documentation as input to the job evaluation. It is crucial the job profile is a 100% reflection of the job and its duties as this will be the only input to the evaluation session. It goes without saying that this is a more cost and time effective option, but often companies are not comfortable using documentation as the only input to the process. The second option is an interactive process that includes interview sessions with relevant stakeholders such as line managers, HR managers and a union representative, in certain cases, as well as any informative company documentation such as organisational charts and job profiles. By using this option, the relevant information can be extracted out of the session ensuring the jobs are evaluated accurately. This is however a more time and cost heavy option but guaranteed to yield accurate results. “Both job evaluation options can give a business the insights they need to make smarter, more strategic decisions and comply with the Department of Labour’s requirements, concludes O’Riley. ENDS MEDIA CONTACT: Rosa-Mari Le Roux, 060 995 6277, rosa-mari@thatpoint.co.za, www.atthatpoint.co.za ABOUT Remuneration Consultants: Remuneration Consultants South Africa provides market leading remuneration and employee benefit consulting services. Our competitive advantage is adding a layer of tax optimization to the solutions we deliver. This enables us to optimally structure your Total Rewards System from the ground up to be fully compliant, where tax is planned proactively and not a mere afterthought. Our team consists of full-time tax attorneys, tax professionals, reward specialists, global remuneration professionals (GRP), chartered accountants, professional accountants and psychometrists. For more information on Remuneration Consultants please visit: Website: www.remunerationconsultants.co.za LinkedIn: Remuneration Consultants Facebook: Remuneration Consultants |
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