The compliance game is changing
Documentation and enforcement matters are more likely to soak up the billable hours of South Africa’s tax enforcement professionals through 2023-2024, as legislators take a break to allow recently introduced changes to take effect. “The tax law has not changed that much year-to-date 2023,” said Professor Keith Engel, CEO of the South African Institute of Taxation (SAIT) during the introductory ‘recap’ to a pre-indaba workshop, jointly hosted by SAIT and Tax Consulting SA. He said minor changes around distributions from trusts had been somewhat overshadowed by the practical application and enforcement of existing laws by the South African Revenue Services (SARS).
An insatiable appetite for taxpayer data
Today’s tax advisers are plying their trade in a data hungry world, evidenced by the insatiable appetites of both local and offshore regulators for more and more detailed information about clients, aka taxpayers. “Your day-to-day business is being jammed up with documentation requirements … everything you do nowadays involves a pile of documentation,” Engel said. Case in point, the Know Your Client (KYC) and documentation of beneficial ownership requirements that have become pervasive in multiple administrative regimes. Suddenly, financial and tax advisers find the Companies and Intellectual Property Commission (CIPC); Financial Intelligence Centre (FIC), the Masters’ Office, SARS and others all queuing up for similar document sets.
The so-called Approval for International Transfer (AIT) process, which SARS implemented from 24 April 2023, stands out as one of the biggest challenges facing financial and tax advisers and their clients. The AIT was discussed in detail in the second presentation to the pre-indaba workshop and will be covered in an upcoming FAnews newsletter. Jerry Botha, Managing Partner at Tax Consulting SA, who participated in the ‘recap’ discussion alongside Engel, deflected from the administrative and enforcement burden, saying that “the biggest challenge as a tax practice was finding more quality staff”. But his concerns over human resource shortages appear to be directly correlated with the admin burden introduced by tougher regulatory oversight.
The grey-listing ‘death by documentation’
Botha hinted that South Africa’s recent grey-listing had contributed to the ‘death by documentation’ scenario. PS, you can attribute this ‘death by documentation’ phrase to the writer, not the tax expert … it just serves to reinforce the growing admin burden that advisers face. “Suddenly we have the CIPC, the Masters’ Office and SARS asking similar questions; [in the AIT space] SARS can ask your clients to disclose every single item at cost whenever they want to move money abroad, going back for 10-, 15 or even 20-years,” Botha said. He reminded the audience that “SARS was incredibly smart” and that the grey-listing was an international initiative that “attacked the flow of money”. Either of these factors should be of concern to wealthy individuals who are not ‘well-planned’.
According to Botha, financial and tax planners will encounter two types of high net worth (HNW) clients in their practices. The first type is the client who is smart enough to know that whatever he or she discloses to SARS today will have to be explainable to SARS officials 10-, 15- or 20-years hence. The second type comprises clients who put their proverbial ‘heads in the sand’ and treat tax disclosures with a light touch. Incidentally, Botha hinted that individuals in the second grouping were ideal tax practice clients, because they will inevitably get into trouble that requires professional help.
“These are exciting times for tax practices; yes, there are still guys that do things in the old way … but we are in a new era of specialisation, with all the opportunity that attaches to this,” Botha said. “The guy who ‘sits’ in tax in this environment has probably picked the right area to be in”. South Africa has moved on from the days when the big four audit firms handled all tax matters, and law firms had little to do with tax advice at all. “As a firm, we will work with anyone that can benefit our clients … it is no longer a game of ‘we know, they do not know, you have to use us’,” Botha said.
It appears, therefore, that collaboration with specialists is ‘ticket to play’ in the modern tax advice marketplace. Another big change is that HNW taxpayers often rock up for a consultation well-informed about the tax landscape, having read the comprehensive SARS documentation and / or researched the topic extensively online.
The evolution of tax advice, planning
Engel agreed with Botha’s observations re the evolution of tax advice. “We have gone from specialisation to super-specialisation … two decades ago, being a tax person was special enough, but today it is not,” he said. He singled out experience as a key differentiator. For example, a tax adviser needs to understand which SARS requirements really matter and which are secondary or superfluous, as well as comprehend the consequences of botching or slipping up on one of the more important requirements. The result, said Engel, is that if you are a merger and acquisition specialist, you cannot also be a wealth management specialist. “You really need a super-specialist and a firm that knows how to handle each area,” he said.
Discussion moderator Keitumetse Sesana, Tax technical Specialist at SAIT, asked the experts for some concluding comment on positioning financial and tax advice practices for ongoing regulatory change, and the tighter documentary and enforcement landscape. “We have moved away from a very passive compliance to a very active compliance environment,” said Engel. Turning to the trust landscape, he added that the days of making up a trust, putting it in a drawer, and then simply walking away were over. The new normal centres around a pro-active SARS that responds dynamically to the various filings your clients make.
Tax compliance is not basic anymore
Commenting on AIT, Engel said: “We are now at a point where if your client wants to move his or her money cross-border, you need to get checks done first … you have to get all of your ducks lined up just to do basic things”. His key observation was that the world of tax compliance was not basic anymore, and that individual taxpayers would increasingly need assistance to complete filings, offshore fund transfers etc. Engel concluded that the game had shifted towards detailed compliance, in which context tax experts had to know the law, understand the compliance ‘game’ and be able to identify and collaborate with the best players in that game.
South Africa tends to react slowly to tax changes; but those involved in this sector need to stay ahead of things like grey-listing and increased surveillance from the tax authorities to meet their client mandates. “When you engage with your clients, you need to have a story; you need [to spin] a narrative in terms of what is happening out there [in order to] keep your clients informed of the latest developments,” concluded Botha.
Writer’s thoughts:
I spend hours each year making sure my tax affairs are in order; but like most taxpayers, I occasionally have issues: resolving such issues can be draining, infuriating even! Are you fed up with the administrative complexity and lengthy delays in resolving tax matters with SARS, whether for yourself or for clients? Please comment below, interact with us on Twitter at @fanews_online or email us your thoughts editor@fanews.co.za
