Home is where the mine is

jungle13Author: Ntebaleng Sekabate (Tax Associate at ENSafrica).

On 15 April 2016, the Minister of Mineral Resources published the draft Reviewed Broad Based Black-Economic Empowerment Charter for the South African Mining and Minerals Industry 2016 (“the draft reviewed Mining Charter”) for public comment, addressing among other issues, the targets to be met by the mining industry in respect of the housing and living conditions of mine workers.

In respect of the housing and living conditions of employees, the amendment to the Mining Charter published in 2010 provides that mining companies must implement measures for improving the standard of housing, including attaining the occupancy rate of one person per room, the conversion of hostels into family units, and the facilitation of home ownership options for mine employees.

The requirement to promote home ownership has been solidified with more defined outcomes in the draft Reviewed Mining Charter, which provides that mining companies must not only maintain the occupancy rate of one person per unit and maintain family units, but must also contribute towards home ownership options for mine employees. These ownership options may include offering different building packages to interested employees, subsidising the purchase of houses by employees, partnering with financial institutions to issue guarantees for home ownership on behalf of employees, and ensuring that any housing offered to employees is integrated within communities in mining and labour-sending areas.

While the requirement for mining companies to provide home ownership options for employees is not a completely new addition to the legislation (as it has always been envisaged in the Mining Charter, as well as the Principles for Housing Conditions set out in the Housing and Living Standards for the Minerals Industry published in 2009), the introduction of the requirement to make contributions towards home ownership options for employees marks a more aggressive approach by the Department of Mineral Resources (the “department”) to ensure that this requirement is met by mining companies, and establishes more tangible criteria to be met by the mining companies (i.e., as opposed to the somewhat vague requirement to “take measures to facilitate” home ownership options for employees).

In this regard, the draft Reviewed Mining Charter states that the Department has identified various shortcomings in the manner in which the mining sector has implemented the Charter, and that not all those involved in the mining sector have embraced it in the spirit with which it was intended. This perceived non-compliance is therefore seemingly the catalyst for these measures taken by the Department to introduce more stringent requirements to be adhered to by the mining industry.

On the other end of the spectrum, it seems little has been done to address concerns raised by mining companies regarding the provision of housing for employees, including the affordability of such housing for the mining companies, employee indebtedness, as well as the high rates of urbanisation in mining areas, which result in high pressure on existing infrastructure such as sanitation, hospitals and schools.

In the event that the provisions of the draft Reviewed Mining Charter relating to mining housing living conditions are finalised in their current form, mining companies will be compelled to incur greater costs to fund the implementation of home ownership options. This is whether or not such companies elect to implement the ownership plans suggested in the draft Reviewed Mining Charter. In this regard, no mention has been made of possible tax and other incentives that may be provided to mining companies for the provision of mining housing to employees where it is intended that ownership will be transferred to the employees. The cost of providing housing will therefore fall squarely on mining companies and their employees.

For income tax purposes, mining companies are only entitled to claim a limited percentage of the expenditure incurred for the provision of housing for employees as capital expenditure, which is deductible from mining income, while the employees realise a taxable benefit possibly giving rise to an employees’ tax (Pay-as-you-earn) liability, depending on the employees’ level of income. The VAT implications of the transaction would also have to be borne in mind when considering the desirability of the various ownership options. These tax costs will have a direct impact on the overall funding costs to be incurred by the mining companies (as well as their employees) for the provision of housing.

The parties clearly need to reach a compromise on the measures that could be taken that would satisfy the need for the provision of much-needed housing while avoiding the creation of a cumbersome financial burden on a mining industry that is already taking strain. Should the draft Reviewed Mining Charter be finalised in its current form, mining companies will have three years to put structures in place for the funding of such housing, as well as for the management of their cash flows.

 

Ntebaleng Sekabate

tax | associate
nsekabate@ENSafrica.com
+27 82 382 1768




Amendments to tax free investment regulations

transfer pricing 101Author: Mareli Treurnicht (Senior Associate at Cliffe Dekker Hofmeyr).

With effect from 1 March 2015, the South African Government (Government) introduced tax free investments (TFI). In this regard, the Income Tax Act, No 58 of 1962 (Act) was amended to introduce a new s12T, in addition to the notice and regulations published in the Government Gazette on 25 February 2015.

Section 12T exempts certain taxpayers from paying normal tax on any amount received by, or accrued in respect of a TFI. Section 12T further states that, in determining the aggregate capital gain or capital loss of a person in respect of a year of assessment, any capital gain or capital loss in respect of the disposal of a TFI must be disregarded. Contributions to a TFI must be limited to cash, R30,000.00 in aggregate during any year of assessment and R500,000.00 in aggregate.

In the 2016 Budget, it was stated that TFIs were introduced to encourage individuals to save and not intended to serve as a vehicle to avoid estate duty. According to the Government, it has become aware that the current law allows individuals who protect their investment portfolio through a long-term insurer to nominate a beneficiary on the endowment policy. The transfer of the proceeds from the TFI asset to the beneficiary would circumvent estate duty. The Government therefore proposes to pass an amendment to the Act in order to prevent such circumvention of estate duty.

The 2016 Budget further stated that, currently, investors receiving dividends from TFIs must submit an exempt dividends tax return to the SARS following the receipt of every dividend payment. The dividends received from TFIs are exempt in terms of s64F(1)(o) of the Act. The Government proposes to remove the requirement to submit an exempt dividends tax return.

Lastly, the 2016 Budget proposed to postpone the implementation date to allow transfers of TFIs between service providers from 1 March 2016 to 1 November 2016 in order to allow more time for service providers to finalise the administrative processes required for such transfers. The date, 1 March 2016 was substituted by 1 November 2016 in terms of the regulations published in the Government Gazette, No 39765 on 1 March 2016. These regulations came into operation on 1 March 2016.

In the 2016 Budget, the Government proposed to introduce draft regulations to outline the transfer process, which have been released and will come into force on 1 November 2016. The draft regulations contain the basic requirements for a valid transfer that will not count against the annual and lifetime limits of a TFI mentioned above.

The draft regulations state that product providers will only be allowed to transfer TFIs directly to another product provider. According to the press release issued by National Treasury on 08 March 2016, investors may not accept transfer amounts into their own accounts outside of a tax free savings account as this will be considered to be a withdrawal. If the amount is subsequently reinvested into a tax free savings account it will have an impact on the annual and lifetime limits.

The draft regulations further state that a product provider must transfer an investor’s TFI to another product provider within ten business days from being instructed to do so by the investor. However, a product provider is not obliged to transfer an amount in respect of a TFI of the same natural person, deceased estate or insolvent estate of the same natural person more than twice a year.

The transferring product provider must also provide the receiving product provider and the investor with a transfer certificate, which all parties must retain for a period of five years after the issue of the certificate. The draft regulations further state the minimum information which must be reflected on such a transfer certificate.

According to the press release, the reporting fields on the IT3(s) for TFIs have already been incorporated and will make it easier to transition into a regime that allows transfers.

The public has been invited to submit comments to the draft regulations to the National Treasury by, 8 April 2016.

 

 




Tax Administration – Rules of prescription

taxation6A fundamental reason for the existence of the rules of prescription in our tax law is to provide a taxpayer with certainty as regards its tax position. It is therefore important that such rules are clear and not subject to unfettered discretions. In disputes with the Commissioner for South African Revenue Service (the Commissioner or SARS), prescription is a powerful defence available to compliant taxpayers, allowing them to bring finality to their tax assessments.

For some time, amendments to the prescription provisions have been on the cards. SARS has motivated for such amendments due to the fact that it has been involved in protracted information entitlement disputes which it alleges are being used as a delaying tactic to force audits closer to the end of a prescription period.  SARS also alleges that it has difficulty finalising certain audits within prescription periods due to their sheer complexity.

There are certain far-reaching amendments to the rules of prescription which were proposed in clause 51(c) of the Tax Administration Laws Amendment Bill No. 30 of 2015 (the Bill), introduced by the Minister of Finance to the National Assembly on 27 October 2015 and subsequently enacted on 8 January 2016.

Previous law

Section 99 of the Tax Administration Act, 2011 (the TAA) regulates prescription for all tax types.

Section 99(1) provides that an assessment cannot be raised:

  • for income tax, three years after the date of an original income tax assessment;
  • for self-assessment taxes, such as value-added tax, five years after the date when the taxpayer self-assessed or paid (as the case may be);
  • if the amount which should have been assessed under the preceding assessment (or paid as in the case where no return is submitted) was not assessed (or paid as the case may be) due to the practice generally prevailing at the time of the preceding assessment (or date of payment as the case may be);
  • in respect of a dispute which has been resolved.

Section 99(2) provides that prescription will not apply to the extent that:

  • in the case of assessment by SARS, the fact that the full amount of tax chargeable was not assessed was due to fraud, misrepresentation or non-disclosure;
  • in the case of self-assessment, the fact that the full amount of tax chargeable was not assessed was due to fraud, intentional or negligent misrepresentation or intentional or negligent non-disclosure of material facts or the failure to submit a return or, if no return is required, the failure to make the required payment of tax;
  • SARS and the taxpayer agree;
  • it is necessary to give effect to a resolution of a dispute or a judgment pursuant to an appeal where there is no further right of appeal.

The prescription provisions as noted above are clear, well-known and do not contain any unilateral powers of extension for the Commissioner.  However, as illustrated below, this has now changed.

Amendments

Clause 51(c) of the Bill proposed the insertion of two new sub-sections to section 99 of the TAA, namely sections 99(3) and (4) and provides (with our emphasis) as follows:

“(3) The Commissioner may, by prior notice of at least 30 days to the taxpayer, extend a period under subsection (1) or an extended period under this section, before the expiry thereof, by a period approximate to a delay arising from:

(a) failure by a taxpayer to provide all the relevant material requested within the period under section 46(1) or the extended period under section 46(5); or
(b) resolving an information entitlement dispute, including legal proceedings.

(4) The Commissioner may, by prior notice of at least 60 days to the taxpayer, extend a period under subsection (1), before the expiry thereof, by three years in the case of an assessment by SARS or two years in the case of self-assessment, where an audit or investigation under Chapter 5 relates to

(i)  the application of the doctrine of substance over form;
(ii) the application of Part IIA of Chapter III of the Income Tax Act,   section 73 of the Value-Added Tax Act or any other general anti-avoidance provision under a tax Act.
(iii) the taxation of hybrid entities or hybrid instruments; or
(iv) section 31 of the Income Tax Act.”

It is apparent from the above amendments that, unlike previously, the Commissioner will be given fairly wide unilateral powers to extend the prescription periods in certain circumstances.

The power to extend the prescription period in the new section 99(3) is not limited to any specific time period and an extension of time is permitted by a period ‘approximate to a delay’. Although the term ‘ approximate’ is not defined, by tying the extension to an event appears to impose some kind of limit on the Commissioner’s power to extend the prescription period.

In addition, the new section 99(3)(a) allows the Commissioner to unilaterally determine the extension of time with reference to a taxpayer’s provision of ‘relevant material’. Due to the fact that what constitutes ‘relevant material’ is also something which is determined with reference to the opinion of SARS as to what is foreseeably relevant, the determination of an extension of prescription period by the Commissioner in these circumstances involves a fairly wide discretion for the Commissioner. This leaves the taxpayer in an uncertain position and has the effect of watering down the current prescription rules.

The new section 99(4) allows the Commissioner to unilaterally extend prescription periods by significant time periods where an audit or investigation relates to certain complex issues. This  amendment leaves the ball entirely in the Commissioner’s court as regards the determination as to whether an audit or investigation involves these issues. The  section makes no reference as to what stage of the audit or investigation such a decision may be made by the Commissioner. It appears that the Commissioner, accordingly, has free reign to extend the periods for prescription any time during an audit or investigation, even at a stage where it may not yet be certain whether any one of the issues listed in the new section 99(4) are indeed of application. If prescription is extended on this basis and a taxpayer is assessed on bases other than those contained in section 99(4), there may be arguments open to a taxpayer that the extension of prescription was invalid.

The amendments to section 99, as they currently read, are far-reaching and will have a significant impact on prescription, which is currently a very strong defence for compliant taxpayers. Although it is acknowledged that the complexity of matters gives rise to very lengthy audits in many cases, it is important that a balance be found to deal with this. The  amendments certainly have the ability of resulting in the normal prescription periods being applicable in significantly fewer cases. A taxpayer bears the onus of proof in tax disputes and in light of the fact that when there is a SARS audit, there will now be a possibility of the extension of prescription periods, and it is important for taxpayers, during the early stages of an audit, to take proactive steps to gather both documentary and oral evidence in support of any case which may have to be defended in a dispute. Since the introduction of the TAA, and even more so now, it is therefore critically important for a taxpayer to take proper legal advice as to its rights and obligations early on in a SARS audit so as to ensure that it adequately protects itself and has the appropriate defences available to it should a dispute arise.

ENSafrica

TAA: Section 99

Tax Administration Laws Amendment Bill No. 30 of 2015




SARS’s investigative powers – a possible backstage pass to matters pending before court?

Yashika Govind (Associate at CLiffe Dekker Hofmeyr).

Chapter 5 of the Tax Administration Act, No 28 of 2011 (TAA) confers a broad range of information-gathering powers on the South African Revenue Service (SARS).

Taxpayers are often assessed for more than one tax period at a time, however, the waters become muddied when there are parallel processes carried on in which the issues being investigated by SARS, overlap with disputes pending before the Tax Court. The taxpayer is then saddled with defending itself in respect of a tax period before court while simultaneously sourcing and providing relevant material pertaining to the same legal issues for an audit of a later tax period. In these circumstances, there is often an overlap of facts, law and witnesses which will ultimately be presented in court, thus rendering the information gathering process questionable.

The following question arises: Is it procedurally fair for a taxpayer engaged in a dispute before the Tax Court to be subjected to a parallel process under the TAA concerning essentially the same dispute? Parallel processes are concerning because they give SARS the potential to gain insight into the taxpayer’s litigation strategy as well as obtaining a preview of witnesses’ testimony prior to trial. This is, of course, impermissible in law as it is a direct infringement of a taxpayer’s right to litigation privilege. In civil and criminal litigation these problems are avoided by means of the lis albi pendens rule, which prevents parties from replicating proceedings in different forums and protects the litigants from breaching the rules of litigation such as litigation privilege.

The correlating rule of lis albi pendens is res judicata, the purpose of which is to prevent a party from reopening a case where a court has already ruled on the matter. Section 99(1)(e) of the TAA provides that SARS may not make an assessment that has been resolved under Chapter 9 of the TAA. In effect this section is similar to the concept of res judicata. The question that then arises is whether SARS can conduct parallel proceedings, such an audit to gather information in respect of later years of assessment, where the very same issues are already pending before the Tax Court? Consequently, can a taxpayer use the rules of litigation to prevent SARS from proceeding with an audit?

An immediate difficulty of raising these rules of litigation in tax matters is that the provisions of the tax acts are amended on an annual basis and thus issues in a particular tax period may be factually identical but legally different from those in later tax periods. In other words, the parties and the facts of the matters may be the same, but the applicable taxing provisions may be different.

The other problem is that the rules of res judicata and lis albi pendens apply specifically in the context of litigation. The provisions dealing with information gathering are contained in Chapter 5 of the TAA and are primarily investigative mechanisms used by SARS “for purposes of the administration of a tax Act”. It would thus not be possible to invoke the rules of lis albi pendens in matters where there is an overlap between a field audit, which is administrative in nature, and pending litigation. SARS is, however, constrained from exceeding the scope of its powers in the following respects:

  • SARS may only request information, in terms of s46(1) of the TAA, “for purposes of the administration of a tax Act”. It may not use its investigative powers with the intention of seeking evidence to conduct its defence in a matter before the Tax Court; and
  • SARS is precluded from interviewing witnesses without having regard to the rules of litigation privilege. SARS may use the information gathering provisions in Chapter 5 to interrogate the taxpayer’s witnesses but only for a legitimate purpose and in a manner that does not undermine the fairness of litigation.

In cases where there is a dispute running in parallel with a field audit, a taxpayer may have limited grounds to prevent the latter from proceeding. To the extent that the taxpayer is prejudiced, in that its right to litigation privilege is infringed, it will need to make out a clear case of prejudice in order to prevent SARS’s investigation from proceeding.

Should SARS continue to use its investigative powers to probe the taxpayer’s privileged information and exceed the scope of its powers, the taxpayer will have the option of challenging SARS to a review in terms the Promotion of Administrative Justice Act, No 3 of 2000.

 




Radebe: Zuma heard of Cosatu objections after he signed tax bill

Ataxation1uthor: Liesl Peyper (News24).

Cape Town – When President Jacob Zuma signed the Taxation Laws Amendment Act late last year he wasn’t aware of Cosatu’s objections with regard to the proposed annuitisation of provident fund benefits.

“The concerns were only brought to the President’s attention after he had signed the bill,” said Minister in the Presidency Jeff Radebe.

At a post-cabinet briefing on Thursday morning Radebe had to field a barrage of questions from journalists about the postponement of the provident fund rules in the legislation.

The bill has been referred back to parliament to make hasty amendments that will defer the implementation of the provident fund provisions. These amendments need to be made before the initial implementation date of 1 March 2016 – a date Radebe believes is within reach.

“The deferment of the implementation date is based on the lack of effective consultation between government and stakeholders,” Radebe said. “Cosatu is not the only organisation which opposes the Bill – we’ve had objections from sections of business as well.”

READ: Presidency: We consulted widely on tax laws

Radebe was asked if government had to give in to pressure from Cosatu in light of the upcoming local government elections. Said Radebe: “We don’t’ take decisions based on threats. But when concerns are raised we can’t remain unmoved.

“Cosatu doesn’t have to rubber stamp decisions of Cabinet,” Radebe added, but admitted that consultation about the amendments had not been effective.




Government backtracks on new tax changes

Author: Liesl Peyper (News 24).

Cape Town – For the second year in a row President Jacob Zuma’s government has been forced to backpedal on provisions in the Tax Amendment Act that compel South Africans to put two-thirds of their provident fund savings in a retirement annuity.

The provision meant that retirees would be allowed to take only one-third in cash, while they are currently entitled to the full amount.

Business Day reported that Finance Minister Pravin Gordhan tabled a proposed postponement at a meeting on Monday with the representatives of the National Economic Development and Labour Council.

Cosatu was vehemently opposed to the act, which Zuma signed into law last year. It vowed to strike and withdraw support for the ruling party in the upcoming elections later this year.

In his State of the Nation address last week Thursday, Zuma hinted that government had taken note of Cosatu’s discontent over the act and that it would try to find a solution.

READ: Cosatu planning to ‘crush’ new tax laws

The bill has since been resubmitted to the National Assembly for consideration and the implementation dates have been changed from March 1 2016 to 2018.

The postponement of implementation dates has sparked concerns that changes to the Taxation Laws Amendment Act would be rushed through Parliament, which would be a costly exercise for the retirement industry which has changed IT processes to deal with the new provisions.

Cosatu’s grievances over the retirement reform provisions arise from the fact that government thinks it can “decide and dictate” to workers when and how to spend their salaries.

READ: New tax laws will ‘poison’ Zuma’s relationship with workers – Cosatu

Current retirement rules state that individuals who retire are entitled to the lump sum available in their provident fund and that they may use it as they please.

Pension funds, however, have different rules. When an individual turns 65 he or she may take only one-third of the lump sum in the pension fund. Two-thirds must be used to buy a pension income – whether this is an annuity or an investment-linked living annuity (ILLA).

The amendments would mean that the same rules would have to be applied to provident and pension funds. Provident fund members will therefore also be compelled to use at least two-thirds of the lump sum to buy a pension income (RA or ILLA).

 




The fine tax line during retrenchments

share trends 4Author: Amanda Visser (IOL).

The different tax treatment of lump sum withdrawals following retrenchment seems at odds with efforts to give relief in difficult times.

In March 2011 the Income Tax Act was changed, treating severance benefits similar to lump sum payments from pension or provident funds. However, it appears as if policy is not taking heed of the dire employment situation in the country.

Deloitte Tax Associate Director Jaco la Grange says, someone who has been retrenched and needs to access his pension or provident fund to survive, receives harsh tax treatment.

Retirement funds can, in fact, be accessed in full for use by the retrenched person. However, the tax-free benefit is only R25 000 for this lump sum (as opposed to the normal R500 000 tax-free amount upon retirement).

Also read: Tax: did the Presidency lie to you?

Someone who takes a lump sum on a portion of his pension or provident fund, and preserves the remaining savings in a preservation provident, or preservation pension fund will receive the first R500 000 tax free.

“The unemployed individual withdrawing retirement savings will be taxed as if he resigned from the pension or provident fund, although the reason for accessing the funds is because he was retrenched. The underlying principle behind this is that government wants to encourage people to preserve some of their pension for later,” says La Grange, also the personal income tax committee chair of the SA Institute of Tax Professionals (SAIT).

Hence, these pre-retirement withdrawals reduce the R500 000 tax-free amount upon retirement, even though these pre-retirement withdrawals are largely taxable.

Marty Santana, senior manager in the expatriates division of SizweNtsalubaGobodo, says the tax-free amount is cumulative, with pre-retirement withdrawals working against retirement withdrawal.

“If you are retrenched more than once in your career, it is possible that you do not have a tax free amount available by the time you get to retirement,” she says.

La Grange says the counter argument is that these are abnormal circumstances.

The act actually provides for pre-retirement severance benefits to be tax-free up to R500 000, and forced retirement withdrawals should arguably be treated the same.

Santana also refers to employees who take voluntary retrenchment packages as part of an informal reduction of staff.

These retrenchments do not appear to be generally covered by the relief that came into effect in 2011.

“If an employee takes a voluntary retrenchment package, the lump sum is treated as normal income and the individual is taxed at the maximum rate,” says Santana.

The South African Revenue Service says, for an individual to qualify for the beneficial tax treatment, employment must have been lost due to the employer having stopped trading, or the employer is embarking on a general reduction of personnel.

Santana says, if one takes voluntary retrenchment or early retirement, it is not seen as part of the beneficial regime.

“It is a very fine line. If you go voluntarily, you are not being relinquished and you could have stayed on. That is the fine line.”

This issue was addressed during a personal income tax workshop between tax consultants and the National Treasury in December last year.

This article first appeared on iol.co.za.




South Africa signed two new double tax agreements with Kenya and Hong Kong

taxation 6Readers will note from SARS Watch that a new double taxation agreement between South Africa and Kenya was recently published in the Gazette. Subsequent to this, a further agreement, this time with Hong Kong, was published in the Gazette on 24 November 2015. Both of these agreements come into effect in South Africa as from 1 January 2016. In Kenya, the DTA also takes effect on 1 January 2016, whereas the agreement with Hong Kong will be effective in that jurisdiction from 1 April 2016.

The South African Revenue Service has been active in the treaty negotiation process over the past few years and the conclusion of agreements with these two countries is welcomed.

For South African residents doing business with Kenya, the agreement is particularly welcome. The 25% domestic withholding tax imposed by Kenya on fees payable to non-residents was a serious impediment to South Africa’s consultancy concerns doing business with Kenya. Under the new agreement, these fees will be taxable in Kenya only if they are derived through a permanent establishment of the South African resident in Kenya.

However, persons rendering consultancy services to either of these foreign jurisdictions should be aware that the agreements contain a ‘services permanent establishment’ provision, in terms of which a permanent establishment includes:

‘the furnishing of services, including consultancy services, by an enterprise through employees or other personnel engaged by an enterprise for such purpose, but only if activities of that nature continue (for the same or a connected project) within the Contracting State for a period or periods exceeding in the aggregate 183 days in any twelve-month period commencing or ending in the fiscal year concerned.’

The abolition of section 6quin of the Income Tax Act has imposed a duty on SARS to ensure that it aggressively protects its residents from taxation imposed by foreign jurisdictions in contravention of the terms of a double taxation agreement. Residents should be astute to ensure that they are familiar with the terms of the new agreements.

Corporate residence is subject to a tie-breaker provision in both agreements which states that where a person other than an individual is a resident of both contracting states, such person will be deemed a resident of the state in which its place of effective management is situated.

An element of debate is introduced in the Hong Kong agreement, which states that, in cases of doubt, the competent authorities must attempt to resolve the matter by way of mutual agreement, taking into account all relevant factors; in the absence of such agreement, the person will be denied benefit under the treaty (subject to limited exceptions).

Withholding tax rates are limited, as follows:

 

  Kenya Hong
    Kong
Dividends 10% 10%
Dividends to company holding >10% 5%
Interest 10% 10%
Royalties 10% 5%

International agreements are a catalyst for trade, and these new agreements should not prove an exception to this rule.

This article first appeared on pwc.co.za.




Customs and excise legislation gets much needed overhaul

taxation1Author: Georgia Mavropoulos (EY).

New legislation will affect customs systems, processes and policies.

International conventions, best practice, globalisation, and technology have assisted in giving the South African customs legislative framework a make-over. This resulted in changes to systems, processes and policies affecting importers and service providers. The current Customs and Excise Act 91 of 1964 is over 50 years old, and is getting a long overdue overhaul. 

The new Customs and Excise Acts aim to  establish a world-class customs control system that meets international standards, best practice, and technology. The Customs and Excise Acts are aligned with the Constitution. It also takes into consideration the revised Kyoto convention, and the World Customs Organisation’s Framework of Standards to Secure and Facilitate Global Trade (SAFE Framework). Its aim is to harmonise, secure and facilitate the international trade framework.

The Customs Acts provide end supply chain visibility for Southern African revenue Services (SARS), as a result of advance cargo reporting, improved seal provisions and mandatory electronic communications and notifications.

The current customs legislation is to be replaced by following three acts:

If enacted the proposed Customs Acts will offer the following benefits:

  • Simplified customs administration and speedier processes;
  • Terminology that is clear, and in plain language which follows global terminology. This will assist multinational companies in speaking one global trade language across their business;
  • The proposed customs acts are designed in a logical and systematic way, with topic-specific chapters which can be easily followed;
  • Flexible warehousing and manufacturing options, which will enhance South Africa’s role as a distribution hub and stimulate industrialisation respectively; and
  • The acts also support the objective of the National Development Plan to promote exports and business competiveness, stimulate domestic manufacturing and support small, micro and medium sized enterprises (SMMEs).

Customs stakeholders should take note of the following:

Re-registrations:

The proposed acts require all importers, exporters and any special manufacturing warehouse (OEMs) to re-register on or before 30 days of the CCA’s effective date.

Failure to re-register within the 30 days will result in the lapse of existing customs registrations. Existing excise registrations or licenses are not affected by the enactment of the CCA. The South African Revenue Service (SARS) has given the assurance that it will have sufficient capacity to handle the process, however some has raised concerns about the practicability of this.

Permissible warehousing:

The proposed CCA differentiates between “public storage warehouses” and “private storage warehouses”.

Some of the biggest changes include:

  • Application for new licences;
  • New receipt and delivery notification requirements by  public and private warehouse licensees and licensed carriers;
  • Storage of free circulation goods with goods which are not  in free circulation;
  • Electronic inventory management system;
  • Periodic goods accounting reporting; and
  • Permissible operations in a warehouse.

General clearance and release processes:

The acts will change the timing of certain clearance procedures, and subject them to strict time constraints. There are separate import and export activities for various customs procedures with designated legislation surrounding each activity such as home use processing, inward processing, outward processing, temporary admission procedures, and warehousing procedures.

The changes will affect the following:

  • The submission period for import clearance declarations will be reduced from seven days to three days after arrival due to improvements in the electronic environment;
  • A clearance declaration is now required for transit instead of a manifest/transport document, as effective control can only be exercised when SARS has all the necessary information.

Movements within SACU are now “imports and exports”:

The new legislation will change the treatment of the movement of goods within the Southern African Customs Union (SACU), the oldest customs union in the world. Movements within SACU will now be regarded as imports and exports. This is contrary to the current customs legislation.

Other important considerations:

There will also be new compliance measures and changes for traders. It will, in particular, impact the penalties regime, voluntary disclosure process (VDP), reporting requirements, and is likely to increase the levels of responsibility and accountability that customs stakeholders need to show.

This metamorphosis of the customs legislation can have positive outcomes in the entire supply chain. However it is essential to have effective participation between stakeholders, and above all patience with “teething” problems.

The roles and responsibilities of business become more prevalent with the changes, and therefore the acts require for consultative processes. It is imperative that business speaks with one voice to SARS. We would recommend setting up a professional platform to facilitate this.

In conclusion, the new laws will align the role of customs consultants more with that of tax consultants. In this ever-changing landscape more reliance will be placed on professional customs tax practitioners.

This article first appeared on the January/February 2016 edition on Tax Talk.




Interest(ing) withholding tax

taxation1Author: Michael Reifarth (Tax Executive at ENSafrica).

The Taxation Laws Amendment Act of 2015 (“Amendment Act”) was promulgated on 8 January 2016 and contains a number of legislative changes to the Income Tax Act, 58 of 1962 (“the Act”).

The Amendment Act contains some long-awaited amendments to the provisions that regulate the interest withholding tax (“IWT”). This article examines two of the more important changes that should be borne in mind by parties affected by the IWT.

Defining the concept of “interest”

Although the IWT only came into effect on 1 March 2015, various iterations of the draft legislation have been in circulation since 2010. The IWT provisions that came into effect on 1 March 2015 did not contain a definition of “interest” to which the IWT applies. The question arose whether the IWT is imposed on the payment of common law interest (generally consideration paid for the use of money) or whether the IWT is imposed on “interest” as defined in section 24J of the Act. In the absence of a definition, it seemed to apply to common law interests.

The promulgation of the Amendment Act has now clarified this point. The definition of “interest” for purposes of the IWT provisions has been defined as “interest” as contemplated in paragraph (a) or (b) of the definition of “interest” in section 24J(1) of the Act.

This means that the basis of the imposition of the IWT will be the following payments made from a South African source by any person to or for the benefit of a non-resident:

  • the gross amount of any interest or related finance charges, discount or premium payable or receivable in terms of or in respect of a financial arrangement.
  • the amount (or portion thereof) payable by a borrower to the lender in terms of any lending arrangement as represents compensation for any amount to which the lender would, but for such lending arrangement, have been entitled.

Since the term “interest” is now defined for purposes of the IWT, the reach of the IWT provisions may be wider for certain taxpayers to the extent that the common law concept of interest was relied upon in determining IWT liabilities in the past.

Additional exemption from the IWT

In terms of the taxing provisions, the IWT is levied on interest (as discussed above) received or accrued from a South African source that is paid by any person to or for the benefit of any foreign person, subject to certain exemptions (our emphasis).

Interest is from a South African source if, inter alia, it is received or accrues in respect of the utilisation or application in South Africa by any person of any funds or credit obtained in terms of any form of interest-bearing arrangement.

The payment of interest by a non-resident who utilises or applies, in South Africa, any funds obtained in terms of an interest-bearing arrangement will, therefore, be from a South African source. It follows that payments of South African sourced interest by a non-resident in respect of a debt owing to another non-resident may be subject to the IWT. In many cases, the non-resident may be unaware of the South African withholding tax implications of utilising funds that are borrowed from another non-resident in South Africa.

The Amendment Act has now introduced an additional exemption from the IWT. In brief, the exemption will apply to any South African sourced interest paid by a non-resident to another non-resident unless –

  • the non-resident payor is a natural person who was physically present in South Africa for a period exceeding 183 days in aggregate during the 12-month period preceding the date on which the interest is paid; or
  • the debt claim in respect of which that interest is paid is effectively connected with a South African permanent establishment of the payor if the payor is registered as a taxpayer in terms of chapter 3 of the Tax Administration Act, 28 of 2011.

Unlike the introduction of the “interest” definition as discussed above, the exemption has come into effect retrospectively and is deemed to have come into operation on the date that the IWT came into operation (i.e. 1 March 2015).

Therefore, provided the exclusions to the new exemption do not apply, South African sourced interest paid to a non-resident in respect of a debt owed by another non-resident is exempt from the IWT with effect from 1 March 2015.

 

Michael Reifarth

tax | executive
mreifarth@ENSafrica.com
+27 83 288 1556