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:

• The tax exemption of excess contribution amounts paid by taxpayers in respect of retirement annuities received by them will now extend to annuities received from provident funds and provident preservation funds as well, from 1 March 2020;
• The ordinary rebates available to taxpayers who receive a pension in respect of a deceased spouse will no longer be taken into account when tax is withheld on these amounts, from 1 March 2021;
• Previously, the transfer of one’s retirement interest from a pension fund to provident fund or provident preservation fund was non-taxable from 1 March 2019, but will now be retrospectively treated as a taxable event, potentially placing these taxpayers in a non-compliant position; and
• Section 12J of the Income Tax Act provides a tax deduction to taxpayers, in proportion to their investment in qualifying venture capital companies, which is intended to promote economic growth. However, this will now be subject to a maximum allowable investment of R2,5 million for individuals, which means more cash-in-hand for government.
  
  

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

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.’ (Emphasis added)
 
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