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10 September 2004 Angelo Coppola

“We see an appetite for aggressive tax avoidance systems every day, but SARS accepts the rule of law, and supports good corporate governance,” says Kossie Louw head of the legal aspect at the South African Revenue Services (SARS).

He was speaking to members of the IoD at their annual business update conference, held in Gauteng this week.

Among the issues he discussed the legislative programme, he did touch on the relatively successful filing season this year.

By 22 July Louw says that 2.4 million returns were in, 42% up on the number for the corresponding period last year. There were also 240 000 new tax payers registered.

Louw confirmed that there is now a single view of the tax products, courtesy of some IT wizadry. “This is not a consolidated account though.”

And just in case you wanted to do business as a high net worth individual or listed company, with the newly opened Large Business Centre – this would only be open for business on 13 September, as staff transfer from the Randburg operation to the new premises in Megawatt Park.

The tax court – a civil court – where tax payers can appeal returns and other tax matters will also be housed at the new centre.

There is one bill awaiting finalization - 80% complete – will cover the more significant tax proposals, announced by the Finance Minister in February. The draft should be out within the next four weeks.

He touched on the advanced rulings system, which is due to be released soon, and will provide some certainty for tax payers. This is a hybrid system, based on the New Zealand system, says Louw. It is not meant to act as a tax advice offering, or a tax avoidance testing station.

Regulation of tax practitioners – going back to 2002 – when the minister announced that he wanted a framework for compliance. A position paper was published with comments in 2003. There is now a model in place and draft legislation is due soon.

The broad-based share ownership scheme, mentioned by the minister some time ago – is soon to be released in draft format, covering areas like length of ownership, and the like.

Section 8a, relating to tax treatment of options for senior management are due to hit the streets relatively soon.

The question of debt vs equity, and over the last while there has been a permanent loss to SARS – and was openly used as a tax avoidance tool. Louw says that CGT solved some of the problems, but not all of them.

STC – avoidance issues and related to SA companies that are wholly owned or owned mostly by offshore parents. The exemption was exploited and the minister announced some time ago that he would stop this.

Legislation will be amended retroactively, and dividends declared on or after 26 August 2004 will be affected.

Louw also confirmed that as of 1 March next year the buyers VAT number will have to appear on tax invoices issued by the seller, where the transaction is more than R1000.

This will have huge implications for businesses who will have to perform more UT wizardry.

Louw confirmed that from November vendors will be able to download the full sars vendor database to cross-check that they are indeed vendors.

Other tax issues he raised included holding companies and their activity of claiming VAT related to exempt supplies, such as a the sale of shares. People are also not declaring VAT on fringe benefits. For example where the employer pays the short term insurance of an employees’ car and no VAT is levied – this is an infringement.

Looking ahead Louw says research is being undertaken into the retirement industry – in terms of the tax treatment from a SARS perspective – while the national treasury and FSB looking at it as part of a bigger picture.

He doesn’t expect any announcements in either regard this year.

The mining industry is being investigated on a holistic basis, while car allowances and their tax treatment is actively being investigated.

"The debt book sits at R50bn to R60bn at any one time,” says Louw, and they are looking for ways of getting this number down, putting a debt collection process in place.”

Dates to remember
Remember that the CGT deadline is the end of September – this year. TO keep your options open there are three methods of valuing your assets – if acquired before 2001. The time apportionment method; or value the asset as of 1 October; or 20% of proceeds.

Areas that will fall into the net include assets like fixed property, unlisted investments, personal use assets like gold coins or boats. If you decide to value the asset you must file the form with SARS.

Don’t forget: End of September is the deadline for the 3rd provisional tax payment. 

Quick Polls

QUESTION

The second draft amendments to Regulation 28 will allow retirement funds to allocate up to 45% of their assets to SA infrastructure, with a further 10% for rest of Africa; but the equity & offshore caps remain unchanged. What are your thoughts on the proposal?

ANSWER

Infrastructure? You mean cash returns with higher risk!?!
Infrastructure cap is way too high
Offshore limit still needs to be raised
Who cares… Reg 28 does not apply to discretionary savings
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