CHAMSA
Taxation Laws Amendment Bill - Commentary to the Portfolio Committee on Finance

1. Introduction
CHAMSA (Chambers of Commerce of South Africa) is a national umbrella body representing the AHI, FABCOS, NAFCOC, and SACOB. It serves to represent the united interests of business chambers. CHAMSA welcomes the opportunity to comment on the Taxation Laws Amendment Bill.

2. General
The proposals in the Bill show that the taxation legislation is in a consolidation phase. After the many complex changes over the past few years including the introduction of residence based taxation, such a settling in phase is welcomed by CHAMSA. There are still some anomalies that need to be addressed.

3. Individuals
3.1 The limitation of deductions for salary earners is still overly harsh and consideration should be given to allowing professional membership fees to be included as deductible items. As such invoices can always substantiate fees, there is very little scope for abuse. If there remains concern over possible abuse consideration could be given to placing a limitation on the deductible professional membership fee expenses permitted. CHAMSA submits that a limit of membership to two professional bodies be considered.

3.2 CHAMSA believes that a case exists for 'independent non -executive directors' as defined in the King Code of Corporate Governance to be allowed a deduction for their business expenses. As the Act stands there is an anomaly between the tax treatment of such directors and the good public policy objectives of the King Code. In short while the independent non -executive director is favoured as the ideal, the provisions of the Act disallow such persons from deducting those expenses that would serve them to do the job expected of them. Expenses such as maintaining an office, secretarial services, reading material and the like are disallowed in terms of section 23 of the Act. CHAMSA proposes that section 23(m) be amended so as to overcome this anomaly.

4. Labour brokers and Personal Service Companies (PSC)
CHAMSA welcomes the relaxation in the provisions pertaining to labour brokers that brings them into line with the rules applicable to PSCs. However, CHAMSA submits that some parts of the legislation remain unworkable and are unfair. Consider the circumstances where a PSC company qualifying for PAYE exemption (by virtue of having more than three full time employees) was employed by firm X at the beginning of the year of assessment. If towards the end of that year the PSC loses its exempt status as a result of no longer having more than three full time employees and the firm X ceases to use that PSC, SARS now demands from firm X the full PAYE amount for the entire year. This is unreasonable and unjust. CHAMSA submits that appropriate amendments be made to overcome this weakness.

5. Section 9D
This section still poses some practical problems that need to be addressed in the legislation. The current residence tax and assessed loss legislation does not cater for a change in tax status of Controlled Foreign Corporation (CFC) and offshore branches, from exempt to taxable, to allow such prior year losses incurred while the net income was exempt, as a deduction (deemed assessed loss brought forward).
For example, where a CFC or branch in a designated country previously incurred losses but now has a "net income" (due to the removal of the designated country exemption), such prior year losses do not qualify as a tax loss brought forward (being exempt in prior years), despite the fact that the taxpayer I CFC of the taxpayer actually suffered the losses in prior years. There will also not be any foreign tax credits (due to the foreign tax loss), to provide tax relief. CHAMSA submits that an offshore company or branch should not be in a worse position than a local company or branch that suffered
losses in prior years, i.e. such losses should be brought forward as well, where such taxpayer effectively suffered the losses. A mere technical change in the way residence tax is calculated, or a change in tax status, should not result in hardship.
CHAMSA proposes that, either legislative changes be made so as to rectify the position outlined above and to deem such prior year losses to be an assessed loss for purposes of section 20, or that a Practice Note be issued so as to bring clarity to the issue.

6. Amendment Proposals
6.1 Membership of professional body allowance (as argued in para 3.1)
6.2 Amendments be introduced to section 23 (m) of the Act to accommodate the legitimate requirements of 'independent non-executive directors (as argued in para. 3.2)
6.3 Personal Service Company (PSC) PAYE anomaly (as argued in para. 4)
6.4 Section 9D Changed CFC tax status and assessed losses (as argued in para. 5)