SUBMISSION OF THE ASSOCIATION FOR THE ADVANCEMENT OF BLACK ACCOUNTANTS IN SOUTHERN AFRICA TO THE PORTFOLIO COMMMITTEE ON FINANCE ON THE SMALL BUSINESS TAX AMNESTY AND AMENDMENT OF TAXATION LAWS BILL, 2006.

31 MAY 2006

1. INTRODUCTION

1.1 The Association for the Advancement of Black Accountants of Southern Africa (ABASA) is a national organisation which was formed in 1985. Its objectives are amongst others, is to advance the interest of black accountants and most importantly to attract blacks into the accounting profession. It engages in a number of projects that facilitate the smooth entry of blacks into the accounting profession. Its overall agenda is therefore that of transformation of the accounting profession so that it should ultimately reflect the demographics of the population of South Africa. Its membership is diverse; it includes students, members in public practice (auditors), accountants in commerce and industry.

1.2 ABASA continues to play a significant role in positively influencing the economic landscape within which its members operate. It is in this context that we have prepared this submission to convey the views of ABASA in the review of the draft legislation as these have a direct impact on our members and the larger economic landscape.

1.3 We believe that any review of legislative framework should take into account the broader transformation agenda of the country (impacting mainly on social and economic landscape). It should also take into account best practices in affected areas.

1.4 ABASA appreciates the positive steps taken by SARS and National Treasury in advancing the tax law reform process. We agree and support the substantive proposed amendments as we believe they will have the impact of strengthening the overall fiscal or tax compliance framework.

1.5 In addition, the reform process will result in modernising our tax legislative framework to take cognisance of advances in communications technologies and worldwide developments in the corporate governance arena.

SMALL BUSINESS TAX AMNESTY

We welcome efforts by the National Treasury and SARS in introducing the tax amnesty for small businesses. Small businesses play an important role in stimulating economic activity, job creation, poverty alleviation and general improvement of living standards. We believe this process will go a long way in improving in broadening the tax base, normalization of the tax affairs of small businesses and increasing and/or improvement in the tax compliance culture. This is so because many of these small businesses operate informally, were historically marginalized and were excluded from the economic mainstream, thus remaining outside of the tax system. This should assist taxi operators who want to participate in the taxi recapitalization program. We also trust that this process will go a long way in broadening the tax base that will eventually lead to the reduction of the marginal tax rates which at this point are still considered to be high. This in turn will make it easier for ordinary citizens to comply with their tax affairs with much ease. Some of the considerations that will need to be given in finalizing the draft legislation are as follows:

· The amnesty levy at 10% is considered reasonable to encourage more people to come to the fore and regularize their tax affairs without fears of incurring huge potential tax liabilities. ABASA welcomes the relief as it relates to additional taxes, interest and penalties for the undisclosed amounts and we believe that this should serve as an incentive for small businesses. We also welcome the provision not to allow for any balance of assessed loss or assessed capital loss brought forward from previous years to be ignored for this purposes as this might lead to abuse of this particular legislation.

· Whilst many of these small businesses are willing to regularize their tax affairs and ensure regular compliance, it is anticipated a lot will not be able to cope with our complex tax legilstion given that a lot has been left out of the tax system and hence are familiar with the tax matters or affairs. As a result the cost of tax compliance for these small businesses is likely to rise as most of them are likely to depend on tax advisors or practitioners to assist with complying with the legislation. Therefore ABASA would like to propose that SARS provide these with simplified manuals that can provide with education on tax matters for these small businesses. A simplified guide that will ensure a better understanding of tax affairs is recommended.

· The different types of taxes that small businesses are expected to comply with are considered to be numerous i.e. income tax (IT), employees tax (PAYE), value-added tax (VAT), withholding tax on royalties, secondary tax on companies (STC) and unemployment insurance fund (UIF) etc. If one looks at the number of returns and the frequency that small businesses have to submit these, it already adds to the cost of tax compliance and put a stretch on the scarce resources of these entities. Some of the forms that are completed are unnecessary long and a lot of information is irrelevant for the small businesses. Therefore ABASA would urge SARS to reconsider the frequency within which small businesses have to render these returns and to also consider designing forms that specifically cater for small businesses.

· We believe the threshold of R5million turnover might limit the number of taxpayers that will be able to come forward. ABASA would like to propose that National Treasury and Ministry consider increasing this limit to R14million in line with the Small Business Corporation Act.

· We also agree that the applicant

AMENDMENT OF SECTION 2 OF THE TRANSFER DUTY ACT,1949.

ABASA welcomes the amendment to the rates of property and increasing the exempt threshold as we believe this will assist a great deal in facilitating the purchase of property by people who were previously excluded in the mainstream economy and also in the light of rising property prices.

AMENDMENT TO THE INCOME TAX ACT, 1962.

• We welcome relief provided on the marginal tax rates by increasing the applicable and qualifying primary rebates. However we believe marginal tax rates are still very high and continued efforts should be put in place to lower this. We believe in the light of efforts to broaden the tax base, this should be achievable in the near future.
• We do not agree with amendment of section 8 and paragraph 1 of the Fourth Schedule to the Act as we do not believe that the assertion that this creates an unfair bias to higher income earners is correct. Whilst we agree that the section has been subject to elements of abuse, there is a need to recognize the role this section of taxpayers has contributed to the fiscal and in most cases have been the most diligent taxpayers. The purpose for which this section was being utilized for is still consider genuine and valid and will need to revisited. We would therefore propose that private kilometers remain at 16,000 and advance payments be taxed at 50% and not 60% as being proposed. Alternatively consideration needs to be given to lower the marginal tax rate as this is now beginning to create an unfair bias in favour of the lower income earners.
• We welcome amendments to section 10 of the Act as we believe that this will assist a great deal in encouraging the culture of savings and investment in this country.
• We welcome amendment to section 12H of the Act as we believe this will assist a great deal in job training and enhancing skills development in the country. We would urge corporates to begin to use this incentives effectively to ensure that we are able to address the issue of skills shortage within a short period of time.
• We welcome amendment to section 56 as we believe it will encourage more people to give to the poor and the needy as the government battles to address the social issues of this country.
• We welcome amendment of paragraph 12B of the Eighth Schedule to the Act as we believe that this will assist a great deal in the government’s efforts to combat the issues of HIV/AIDS particularly for those employees who cannot afford medical aids and the costly treatment of this pandemic.
• We welcome amendment to paragraph 45 of the Eighth Schedule in the light of increasing property prices that we have witnessed in the recent past.

AMENDMENT OF THE CUSTOMS AND EXCISE ACT, 1964.

ABASA welcomes amendments to section 4 and 107 of the Act as we believe this will go a long way in assisting efforts to combat crime and drug trafficking in this country and would urge that initiatives around this area be linked with efforts by the police to combat crime in this country.

AMENDMENT OF THE VALUE ADDED ACT, 1991.

ABASA welcomes the amendments that seeks to simplify the VAT process for a municipality as we believe this will lead to improved efficiencies around the delivery of services as they will spend less time focusing on complicated tax and accounting matters. This should also make available certain resources that will be made available as a results of input tax they will be able to claim. We also welcome the clarification provided to section 40B as this will ensure there will be greater understanding and application of the Act going forward. We also welcome amendments to section 11 which seeks to promote an environment friendly practices.

AMENDMENT OF THE TAX ON RETIREMENT FUNDS, 1996.

ABASA welcomes proposed amendment for the rate of tax on retirement funds from 18% to 9%, we see this proposal as encouraging the culture of savings in the country, protection against the elderly and poor. However caution needs to be given that we do not create a loophole leading to income being channeled from other industries in order to take advantage of the lower rate of tax. Therefore SARS needs to look out for that possibility of that happening as we have seen in the past.

AMENDMENT OF THE UNCERTIFICATED SECURITIES ACT, 1998

ABASA welcomes proposed amendments for section 5 and 6 of the Act.

REGARDS,

AVHASHONI RAMIKOSI

ABASA NATIONAL PRESIDENT