1. Thank you for affording us the opportunity to comment.
2. We again raise the following general concerns:
2.1 Insufficient time is allowed for proper consideration of voluminous and often complex amendments. As experienced with the rushed introduction of capital gains tax, it invariably results in unintended consequences emerging in due course, which require further amendment.
2.2 The cost of complying with the administrative requirements of taxation legislation is becoming increasingly prohibitive, not only for small businesses, but for business in general.
3. COMMENTS ON SPECIFIC PROVISIONS
3.1 Ad sec 4 of Act 580J 1962:
The R50,00 fine in subsection (4) is ridiculously low. Persons should be prohibited from fulfilling the relevant function if they have not taken the prescribed oath. Failure to abide thereby should result in a substantial fine (say R50 000). (Compare this to a bank teller who inadvertently does not recognise a transaction to be suspicious and fails to report as required by the Financial Intelligence Centre Act, for which a liability of a R10m or 15 years imprisonment exists.)
3.2 Ad sec 88A(1) of Act 58 of 1962
The definition of "settle" should not be limited to either accepting the Commissioner’s or the other party’s interpretation. There may be a "middle of the road" interpretation, which is acceptable to both parties.
3.3 Ad sec 89 quat of Act 58 of 1962 Delete "of" in the second last line of par (b) after "date" and before "that".
3.4 Ad par 6A of the Fourth Schedule to Act 58 of 1962 We object to the personal liability of the individual concerned. The employer should remain liable to SARS.
3.5 Foreign provisions and STC It is not clear what the objectives of the proposed amendments are. An explanatory note would be helpful.
3.6 Reportable transactions
3.6.1 The definition of "reportable transaction" is extremely wide and could possibly include any contract of insurance. In order to make the reporting requirements more manageable, it is proposed that a minimum tax benefit be incorporated which would trigger the reporting requirement. We recommend R1m.
3.6.2 Ad sec 76B
There is no definition of "tax shelter transaction".
3.6.3 Ad sec 76C
What happens if the Commissioner does not issue an identification number within 60 days ?
3.6.4 Ad sec 76E It is in our view unconstitutional to deny a taxpayer any benefits to which it is entitled in terms of the law. Failure to report should be treated in the same way as failure to take the prescribed oath in sec 4(4) of Act 58 of 1962. In any event, there is a criminal sanction provided for in sec 104(1A)(a).
3.6.5 Confidentiality To include "confidentiality" as a trigger for a reportable transaction, denies companies their proprietary rights in respect of new products and protecting their intellectual property in a very competitive environment.
The vagueness of these provisions may also result in unintended transactions having to be reported.
3.6.6 Arrangements identified by the Minister
This requirement is in our view equally vague. When is a transaction "substantially similar" to one gazetted by the Minister? What level of detail will be published by the Minister? Transactions are often structured very differently, but with the objective of obtaining a similar financial or commercial result. Is it the result that will be compared, or the design or structure, or both?
3.6.7 Ad sec 104(1A) of Act 58 of 1962
It is proposed that subsec (b) and (c) be deleted. It is not in the public interest to subject administrative oversights to such extreme criminal sanctions.
3.6.8 General
It is submitted that these provisions are not only vague in the extreme, but lends support to the allegations that SARS has an unprecedented objective to inhibit innovation and competition in the financial services sector in the belief that this innovation and competition comes at a substantial cost to the fisc. We are convinced that there are less drastic and less costly ways to address the issues at which these draconian measures are aimed.
It is anticipated that these provisions, if legislated as proposed, are likely to give rise to a substantial number of disputes between SARS and taxpayers and will not only undermine the administrative effectiveness of SARS, but is likely to create more uncertainty in the wider taxation context.
4. RINGFENCING OF LOSSES It is our view that these provisions will have a dramatic effect on economic growth in this country.
While we sympathise with the objective to eradicate abuse by certain taxpayers, we are of the view that the economic consequences, especially for small businesses, should not be underestimated. Small businesses are often started by people who have the financial means available. These businesses invariably provide employment to scores of people who may otherwise be unemployed.
To ringfence losses as proposed, will have a major impact on such business development in general, and in particular on secondary farming activities.