South African Institute of Professional Accountants
30 June 2014
Tough action on tax dodgers saw surge in registered tax professionals
Since the Tax Administration Act was implemented a year ago, the South African Institute of Professional Accountants (SAIPA) has been working hard to register and verify members under its tax designation.
“There has been a 207% growth in member registration since the law kicked in,” says Mahomed Kamdar, Tax Advisor at the Centre of Tax Excellence (CoTE), a division within SAIPA. “Also, there has been a 1340% increase in member verifications via the SAIPA website since 1 July 2013, which means that business owners are taking it seriously that their accountants must be registered with a controlling professional body that is recognised by the South African Revenue Service.”
Tax professionals play a critical role in the lives of both individual and company taxpayers, enabling them to successfully apply the tax legislations. But are all tax professionals equally qualified to fulfil this important role? Not so, says Kamdar. “The only way to ensure that you’re receiving the best, most reliable advice is to check that your tax professional is registered with a recognised professional body like SAIPA.”
Individual tax season starts 1 July
One of the benefits of engaging the services of a registered tax advisor, especially as the individual tax season begins on 1 July, is that such a tax professional knows about key changes in the law that are likely to have an impact on a client’s affairs.
Government heavily backs retirement savings vehicles
One such development is the new law concerning the contribution to retirement funds.
“Not everyone knows about this, but government will soon be offering a very generous benefit to individual taxpayers by covering the bulk of the costs of saving for their retirement,” says Kamdar. “Government is showing a commitment to its expectation that people should fund their own income in retirement. We must pay serious attention to this.”
Under the law, which kicks in on 1 March 2015, individual taxpayers will be able to recoup as a rebate up to 27% of what they earn if they pay this amount into any retirement savings vehicle, whether it is a provident fund, pension scheme or retirement annuity. “That means you could receive up to R350 000 per year back as a rebate if you save the maximum amount as prescribed by the law,” he says.
Although the benefits will only be realised from March 2016, as a tax professional himself, Kamdar says it is worth upping one’s retirement savings now. “It’s a fact that most people aren’t saving as much as they ought to in order to prepare for their retirement,” he says. “So, having consulted with your tax professional, you should exhaust the current limits now, while awaiting the greater benefit in 2015.”
“Talk to your tax professional and you’ll find that there is some concern over the newly released draft Taxation Laws Amendment bill, which is expected to be passed into law by November this year.”
According to Kamdar, there is a chance that the individual tax liability will increase as government is planning to tax employers’ contributions to a Defined Benefit Fund.
In terms of a Defined Benefit Fund, the notional employer contribution is made in order to ensure that the retiree receives the contribution that was promised. “Now, Treasury is thinking about making this contribution taxable in the hands of the employee, which clearly has enormous implications for an individual’s tax liability,” says Kamdar. “It is not yet clear how the formula will evolve, but SAIPA is currently scrutinising the draft law in order to give input into its formulation, for the benefit of individual taxpayers in South Africa.”
Increased tax burden?
“It is understandable that taxpayers begin to fear an increased tax burden when SARS makes statements predicting a 10% annual increase in total tax revenue over the next three years to around R1.3 trillion by the end of March 2017,” says Kamdar.
“However, people are misunderstanding the fact that this also implies that they will be earning more over time, particularly as government’s investments in building schools, hospitals, roads etc. translate into increased opportunities for people to earn more money,” he says.
Although the tax community has consistently predicted an increase in the tax rate over the past few years, this has not materialised. “Instead, I believe that SARS is following the approach of benignly encouraging all taxpayers to disclose all of their income.”
“Better disclosure of taxable income is becoming a reality as the law forces tax professionals to declare their clients’ entire income or they risk losing their professional status,” says Kamdar.
In addition, there are moves to unearth the underground economy and bring more of South Africa’s taxable earnings into the tax net. “It is becoming more difficult for taxpayers to hide their income, even abroad, for example, as tax authorities are now communicating much more than they used to.”
There are also provisions in the Tax Administration Act that compel third parties who hold income on behalf of taxpayers – such as lawyers collecting rental monies on behalf of clients – to disclose that income. Moreover, SARS is applying an entire ‘machinery’ and innovative ideas to catch tax dodgers – even, for example, noting the number plates on luxury cars in order to check on the owner’s tax situation.
“SARS is not playing games,” concludes Kamdar, “And we would encourage taxpayers not to play games with them either. The time to engage the services of an experienced professional tax advisor is now.”