The new tax season has begun. It is time to get your tax inputs in order.

 

If you are an individual, or if you run an SME, there are two basic ways to get your tax done. The first is to log on to the SARS e-filing website and submit your tax returns yourself. The second is to find a registered tax consultant or tax service to help you submit your returns.

 

SARS e-filing is a free, online process for the submission of tax returns and other related services in a secure online environment. Once you are registered for e-filing you can visit SARS online for the submission of returns, declarations and payments in respect of taxes, duties, levies and contributions. e-Filing also allows you to submit a variety of tax returns including VAT, PAYE, SDL, UIF, Income Tax, STC and Provisional Tax through the e-filing website.

 

“While e-filing makes it very easy to submit your tax returns on your own”, explains Somaya Khaki, SAICA’s Project Director at Tax Suite, “it is always a good idea to use a professional tax consultant to submit your returns for you if you are uncertain about anything. Making sure that you are compliant will reduce the likelihood of being audited by SARS and may increase your chances of receiving a refund if deductions are available that you were unaware of ”.

 

Here are some general tips to keep in mind:

 

• General tax rates on the profits of small business corporations are as follows:
  • R0 – R67 111 (0 %)
  • R67 112 - R365 000 (7%)
  • R365 001 – R550 000 (21%)
  • R550 001 + (28%)

• If you supply any of your employees with a subsistence allowance for their business travels, these allowances are tax-free if your employee is obliged to spend at least one night away from his/her usual place of residence and if they do not exceed the following amounts:
  • R319 per day for meals and incidental costs for travel within the Republic
  • R98 per day for incidental costs only within the Republic

• Severance benefits which you might have paid out to your employees in respect of the relinquishment or termination of their employment (for either attaining the age of 55 years, due to incapacity through sickness or other ailment, or retrenchment) are taxable in accordance with the following table:
  • R0 to R315 000 (0%)
  • R315 000 to R630 000 (R0 + 18%)
  • R630 000 to R945 000 (R56 700 + 27%)
  • R945 000+ (R141 750 + 36%)

• If you have acquired any intellectual property, the costs incurred (i.e. other than developing or creating) can lead to tax rebates from 5% (for inventions, patents or copyrights) to 10% (for designs). Intellectual property costs not exceeding R5 000 may be deducted in full although no deductions are available in respect of trademarks.

 

“These are just a few examples of details that you might miss out on when submitting your tax return and there are many more”, reports Khaki. “If you are unsure about your tax status or compliance, or if you think there may be deductions you are missing out on, you should contact a professional tax consultant or tax service you can find registered tax practitioners at”. This is a professional tax information database powered by SAICA (The South African Institute of Chartered Accountants). It’s the definitive source for anyone who needs to find a professional tax advisor.

With the 2013 budget speech fast approaching, the South African Institute of Chartered Accountants (SAICA) calls for the Minister of finance, Mr Pravin Gordhan, to review certain provisions related to the Value-added Tax Act, No 89 of 1991 (“the VAT Act”) pertaining to companies that have already implemented business rescue proceedings.

Value-Added Tax (VAT) is fast emerging as the tax of the future, with governments worldwide shifting their focus from direct taxes to indirect taxes in the wake of the recent economic uncertainty. Rising budget deficits have placed pressure on many governments to look to raise additional forms of revenue, and they are increasingly turning to indirect taxes as the solution.

 

These are some of the highlights from PwC’s inaugural edition ‘Charting the changes, 21 years of VAT in SA’, which outlines the numerous reforms that have taken place in South Africa and on the African continent over the period as well as some of the challenges that lie ahead for the market.

Charles de Wet, PwC National Leader for Indirect Tax, says: “Indirect tax policies, legislation and compliance with the law are all under increasing scrutiny from governments and tax authorities.

 

“From a risk management perspective, it is important that VAT be managed properly as it can become a huge expense for a company if it is not correctly accounted for.” De Wet says that minor errors and flaws can have a cumulative effect where the volume of transactions is significant. Furthermore, if the VAT process is not adequately managed, it can have an effect on an organisation’s bottom line and even disrupt procedures and processes.

“Companies face significant compliance risk coupled with hefty penalties and interest levied by the tax authorities, as well as disruption to businesses and increasing reputational risk.”

 

Worldwide the efforts of governments to improve tax compliance have also placed increasing pressure on companies to put risk management high on the board’s agenda, he says. “The tax function needs to assume more responsibility for tax than the finance function of the organisation. Clear policies need to be put in place as to how the VAT function should be managed.”

 

Tax departments have up to now tended to focus their attention on direct taxes. “This will have to change with the emphasis being placed on VAT and indirect taxes,” says De Wet. “Organisations need to put adequate and efficient resources, processes and technology in place to manage VAT challenges.

“On the face of it, VAT may seem a simple and acceptable tax to businesses as it is passed on to the consumer. However, there is an invisible cost to organisations which is extremely high and burdensome, namely that of compliance with the law.”

 

De Wet says although the basic principles of VAT are similar in most countries, the administrative practices, and rules and regulations applied tend to differ which can affect the compliance burden for businesses. VAT returns are required at different frequencies; monthly, bi-monthly, or quarterly, he explains. “This will have a significant effect on how long it takes a business to comply with VAT.”

 

South Africa is considered to have one of the highest VAT burdens in the world, according to research carried out by PwC Tax Services. It takes far longer for companies to comply with the VAT laws than corporate income tax. Companies have to complete three tax returns for company tax purposes. Organisations with an annual income of more than R1 million have to complete 12 tax returns for VAT purposes.

 

The PwC report highlights the increasing focus on improving the administration of VAT, including the use of electronic filing of VAT returns and reducing the compliance burden on the taxpayer, with the report drawing on data gathered from analysts across the PwC Southern Africa indirect taxes network.

 

To date VAT has been implemented in 151 economies worldwide.  De Wet says there is no VAT system in the world without flaws if one has to carry out a comparison and review of such systems. “There is a need for the tax authorities to eliminate non-compliance with the laws and fraud.” Established VAT systems such as those in the European Union appear to have fewer opportunities for fraud and higher levels of compliance than those introduced in the past decade.

Other key highlights from the PwC report include:

• Most countries in Africa tend to apply a single tier system of VAT, which, if properly administered is better than sales or turnover tax, as it leaves an audit trail;
• South Africa’s banking system could face higher VAT costs in the wake of new regulations;
• State owned entities need to include VAT compliance in their strategic planning activities and where necessary, be prepared to defend business and VAT decisions from tax officials;
• There is a general trend for tax authorities to take a more aggressive approach to compliance and penalties are reflective of this;
• All countries with a VAT regime are now using automation to some degree.

No. 28 of 2011 commenced on 1 October 2012. However this has caused slight confusion over when the deadline for VAT returns actually is.

 

Until now vendors believed they would need to be eFiled by 25 October 2012 in order to avoid penalties. However SARS has provided some relief advising (on their website) that they are not requiring VAT vendors, who use eFiling, to submit VAT returns on the 25th of the month as previously indicated and have further advised that an amendment will be introduced into the current Draft Tax Administration Amendment Bill.

 

The effect of the amendment will be to "ensure that the due date for both filing and payment remains the last business day of the month if the return is filed via eFiling and payment is made either via eFiling or EFT on or before that day and the payment reflects in the SARS account on or before that day”.

 

In summary, SARS is not requiring eFiling users to submit VAT returns on the 25th of the month.  The benefit of no interest, penalties or prosecution will remain effective if the return and the payment are submitted via eFiling (or EFT) on or before the last business day of the month”.

 

The Act reflects the constant endeavour to simplify law, reduce red-tape and streamline the administration process to provide a better service to taxpayers, whilst strengthening enforcement and compliance. Let’s hope that this amendment to the Act will go someway in doing what it is trying to achieve.

Multinational companies who fail to appoint a local tax agent to carry out Value-Added Tax (VAT) activities on their behalf for any transactions and business activities in Zambia will have to fork out hefty fees, warns Professional Services Firm PwC. Foreign investors, including South African companies, who register entities in Zambia need to consider the VAT implications of entities when importing goods and services, says Elandre Brandt an International Tax Director and Leader of the Africa Desk at PwC in Johannesburg. “Not only is the appointment of a tax agent an expensive exercise, but the legal implications must also be considered,” says Brandt.

Most African countries have the reverse VAT mechanism in place. The reverse VAT mechanism requires the importer rather than the supplier of services to account for and pay the VAT over to the local tax authorities. Usually reverse VAT is a timing issue as the VAT paid on the importation of services can be claimed as a credit, provided it is incurred on services acquired solely for the purpose for the purpose of making taxable supplies, says Brandt.

“However, in Zambia the tax treatment is different. Where the non-resident supplier does not make use of a local tax agent, the importer of the service will have to bear the reverse VAT charge out of pocket since it will not qualify as an input VAT deduction.” For example, a Zambian entity which imports $100 worth of services will be required to account for and pay VAT at 16% of the value of the imported service. The result is that for every $100 worth of services imported, $116 is paid in total with the VAT charge of $16 being an additional expense for the importer.

In order to overcome the problem around the deductibility of reverse VAT, the foreign supplier of services must appoint independent tax agents which are resident in Zambia. The tax agent should be a VAT registered supplier approved by the Commissioner-General of the Zambian Revenue Authority.

In this instance the ‘local tax agent’ will take on the liabilities and obligations of the foreign supplier for any transactions and business undertaken in Zambia. Under this arrangement, the tax agent will raise invoices for local supplies on behalf of the foreign supplier and account for output VAT on the value of services provided. As the tax agent would be locally registered and operate under a local VAT registration, the recipient of services should be entitled to reclaim the corresponding input VAT, assuming they are VAT registered and make taxable supplies.

“Appointing tax agents can be expensive and the basis of fees charged can vary from a percentage of the value of the invoice to a minimum fixed fee,” says Mary Drought, PwC Tax Manager in Zambia. The VAT charged by the tax agent on agency fees is not deductible as input VAT. Furthermore, the Zambian recipient of the services is liable, in a similar manner as the agent, for any liability arising from the functions performed by the tax agent. These functions include the maintenance of records or accounts, the filing of the relevant VAT return and the payment of taxes and interest. Considering the risk of potential liability, it is paramount that a reputable tax agent is appointed and monitored for compliance with the requirements of the Zambian Revenue Authority, says Drought.

“Zambia provides an increasingly investor-friendly environment with a number of reforms being implemented in the process of business establishment. Furthermore, multi-facility economic zones, tax and regulatory incentives make the country a good destination for foreign direct investment. As a member of the Southern African Development Community free trade area and the Common Market for Eastern and Southern Africa (COMESA), Zambia also provides easy access to both Eastern and Southern African markets.” says Drought.

These, together with investment opportunities in the mining, tourism and horticultural industry, amongst others, have led to much foreign direct investment in Zambia in recent years.

“Beyond these favourable considerations however, foreign investors who are considering registering companies in Zambia need to also consider the VAT implications on these entities, particularly if services are to be imported into the country.

“A decision will have to be made between incurring the monthly agency fees and monitoring costs on the one hand, and having their Zambian subsidiaries or branches bear the 16% VAT as an additional expense on the other hand,” says Brandt.

Brandt will present a workshop at PwC’s 15^th African Tax and Business Symposium in Mozambique during September 2012, regarding global emerging international tax issues.

Value-Added tax (“VAT”) is an indirect consumption based tax on goods and services in South Africa. VAT is currently levied on taxable supplies made by a vendor at a standard rate of 14%.

The VAT registration process is initiated through the submission of the VAT101e form which is available on the South African Revenue Service’s (“SARS”) website. The VAT101e registration form clearly requests that certain supporting information/documentation accompany the registration form. In an attempt to reduce and deter fraudulent VAT registrations, SARS has recently implemented further stringent requirements to register for VAT.

It is a moot point that the VAT registration process requires more substantial insight into the activities intended to be carried out by those applying for same.  However, it is difficult if not impossible to ascertain what supporting documentation is required as there is no consistency in this regard as SARS’ branch offices do not request the same supporting documentation.

In the past, applicants for VAT registration were able to track the progress of their application, as an administrator was assigned to the registration application. Now, call centres request the confirmation of certain information before they can discuss anything related to the ‘tax account’ in question, but are then unable to confirm if the registration application has been received or even where it is in the process.

Cognisance must be taken of the fact that the same rules cannot apply for every applicant, and as such not all applicants are in possession of the documentation requested for VAT registration purposes. For example, SARS requests the provision of three months bank statements which reflect a balance of at least R50,000, which is a problem for newly incorporated companies applying for registration based on agreements entered into as their bank account will not contain sufficient (if any) transactional detail.

An applicant’s failure to provide the requested supporting information results in unreasonable delays of the processing of the registration application, sometimes up to eight months. Perhaps the supporting documentary requirements need to be addressed and tailored according to industry/trading activity, expected taxable income or residency.

Due to the uncertainty and unreasonable requests from SARS regarding the registration process, it has become a hindrance to the local business community and impacts on foreign direct investment into South Africa. We should be encouraging investment into South Africa and not turning our back on interested investors.