South Africa needs a tax system that represent taxpayers

November 1st, 2018

By Kgomotso Ramotsho

Tax Ombud Judge Bernard Ngoepe said taxpayers and tax practitioners can directly approach the Office of the Tax Ombud if they identify systemic issues. He was speaking at the 2018 Tax Indaba on 11 September in Johannesburg.

The 2018 Tax Indaba was held from 10 to 14 September in Johannesburg. Keynote speaker and former Minister of Finance, Nhlanhla Nene, said tax revenue is critical to the functioning of any democracy. He added that lower tax collections have serious consequences and can impact everyone, whether it be through lower expenditures on education or health, or through an increase in tax rates to make up for a shortfall. He noted that the ability of government to borrow money at reasonable interest rates is also dependent on its ability to collect taxes.

Mr Nene said while deliberating on proposed tax amendments, comment is often made that the country’s tax legislation should be more simplistic and easy to understand. He pointed out that while government takes that plea to heart, it would be very easy for the legislature to write simple tax laws if, no one tried to circumvent them. He said passages of the Income Tax Act 58 of 1962 that are more difficult to understand, have contributed significantly to job creation for many tax practitioners. He added that there is greater public debate regarding numerous tax issues lately, from a discussion around the value added tax (VAT) rate increase and zero-rating, to the role of illicit trade and non-compliance. He noted that greater debate and introspection of these tax issues can only improve the understanding of these topics and hopefully lead to more just, efficient and considered policies and actions. ‘Events such as the Tax Indaba play an important part in contributing to those debates,’ Mr Nene said.

Mr Nene pointed out that unfortunately much of the debate around tax issues have occurred due to the substantial shortfalls in tax revenue, which amounts to R 30 billion and R 49 billion during the past two fiscal years. ‘To make up for these shortfalls, we first increased personal tax rates and taxes on capital gains and dividends, and subsequently raised the value added tax rate,’ Mr Nene added. He said revenue shortfalls over the past few years have partly been due to the fact that the economy has been growing slower than what had been projected. However, the potential impact of a reduction in the effectiveness of tax administration cannot be ignored.

University of Johannesburg’s Professor, Thabo Legwaila, said South Africa needs a tax system that represents taxpayers.

Mr Nene pointed out that tax avoidance and tax evasion will be on the rise in any economy that is growing slowly and where taxes have been increased. He said a strong, capable and effective revenue authority must be there to limit those activities and make sure the correct amount of revenue continues to be collected. He noted that some taxpayers began to lose trust in the South African Revenue Service (Sars) because of how they had been treated. He said the importance of an institution, such as, the Tax Ombud cannot be understated, and the public should have confidence in their ability to listen to the concerns and make sure that Sars is treating taxpayers fairly and correctly.

Mr Nene said bad treatment of taxpayer’s negatively affects the collection of tax and the country’s financial position. Government has an obligation to act ethically and correct any possible failings, but equally so, individuals and corporates have an obligation to act in a responsible manner. ‘Many South African professions and professionals are at a crossroad. It so happens that this audience comprises of lawyers, accountants and auditors, professions whose conduct has attracted public scrutiny locally and abroad. The behaviour of a number of corporates have visibly fallen short of the level of ethics that one would expect, especially given the reputations of those firms,’ Mr Nene said.

Tax Ombud, Judge Bernard Ngoepe, said taxpayers and tax practitioners can directly approach his office if they identify systemic issues. He was responding to a question asked by the panellist chairperson, Partner in the Tax Practice at Webber Wentzel, Joon Chong, on issues that were in the systemic report the Tax Ombud had compiled. Judge Ngoepe added that the office of the Tax Ombud – in order to make sure that people are aware of the systemic issues – has added the issues to its website. He noted that taxpayers and tax practitioners did not have to first exhaust Sars’ internal resources before they approach the office of the Tax Ombud.

Judge Ngoepe said following the report, the office of the Tax Ombud has had regular engagements with Sars. He added that his office is also looking at whether they are receiving more complaints than in previous years with regard to tax refunds. ‘We know that not everyone is complaining. There are people who may be faced with these issues but do not lodge a complaint,’ Judge Ngoepe said. He pointed out that in order to get a feeling of what is happening, the office of the Tax Ombud conducted a survey among some tax practitioners and taxpayers on their experience with Sars. He said most tax practitioners who took part in the survey indicated that there are still a lot of issues with regards to tax refunds.

University of Johannesburg’s Professor Thabo Legwaila said the tax system that represents taxpayers should have more power. He added that taxpayers complain that the taxman uses their tax money to institute actions against them, and taxpayers have to get more money to defend themselves. He pointed out that there should be a concept of a ‘legal aid’ at the office of the Tax Ombud for taxpayers.

Technical Executive at the South African Institute of Professional Accountants, Faith Ngwenya, spoke at the 2018 Tax Indaba held in Johannesburg.

Mr Legwaila said with regards to the Sars Service Charter, the country cannot have Sars determining what the taxpayer’s rights are and what taxpayers should do. He pointed out that what is required of the taxpayer is included in the Income Tax Act.

Technical Executive at the South African Institute of Professional Accountants, Faith Ngwenya, said South Africa is famous for coming up with policy documents and before a policy document is even fully implemented, another policy document has been revised and the implemented one is already on the cards. She added, in hindsight, without anything protecting taxpayers under the legislation, Sars drew up documents that included both the rights of taxpayers and what is expected of them.

Ms Ngwenya said there will be situations where there is confusion with regard to the taxpayer’s Bill of Rights, while there is a Service Charter and pointed out that taxpayers and the tax industry as a whole will be confused. She added that one issue – when looking at the clause – is that a taxpayer should not pay anything more than what they are liable to pay. Ms Ngwenya pointed out that the minute you remove the ‘pay now, argue later’ clause, you allow for every citizens not to pay their dues, because they would say they are arguing their case. She said there are various methods that can be put in place and one of the methods will be that the taxpayer will have to pay the minimum amount.

Kgomotso Ramotsho Cert Journ (Boston) Cert Photography (Vega) is the news reporter at De Rebus.

This article was first published in De Rebus in 2018 (Nov) DR 12.