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Moneyweb [Barbara Curson] 

In the preamble to the latest Tax Administration Bill, the South African Revenue Service (Sars) indicates that it proposes to “remove the requirement of intent from certain criminal offences”.

In what has become Sars’s attempt at a “tough stance” to scare taxpayers into compliance, it has taken a blunt tool to remove a higher burden of proof that an action – or an omission – had criminal intent.
Sars has already decided that any action or omission was “wilfully done”, and is therefore criminal. So why should it waste time in trying to determine this?

It seems that in Sars’s book, taxpayers cannot make an honest error (naturally this doesn’t apply to Sars’s own staff).

Bowmans partner Patricia Williams explains: “Sars wants to remove the requirement that the relevant action must have been done ‘wilfully’. This removes the requirement of criminal intent before the action is considered a crime.”

Burden of evidence

Sars has in the past attempted to “utilise the criminal offence provisions to extract funds from people”. However, to be successful, Sars had to clear the ‘wilful intent’ hurdle. This was obviously placing too high a degree of skilfulness on Sars’s auditors; after all, ‘wilful intent’ requires a heavier burden of evidence.

Says Williams: “Criminal intent already encompasses dolus eventualis – that is, foreseeing the reasonable possibility of an outcome and reconciling yourself to that. In the circumstances, gross negligence would already arguably meet the standard of something ‘wilfully’ done. What Sars is seeking to do is to criminalise mistakes.”

Many frustrated taxpayers and tax practitioners complain that Sars treats them like criminals. Well, here is the proof.
Sars intends excising ‘wilful intent’ from:

• Paragraph 30 (employees’ tax offences) of the Fourth Schedule to the Income Tax Act (TAA);
• Section 58 (offences in regard to compliance) of the Value-Added Tax Act; and
• Section 234 of the Tax Administration Act.

The amendment to Section 234 of the TAA now changes an error that can be made by anyone into a criminal act, such as: the failure to notify Sars of a postal address, a physical address, banking particulars used for transactions with Sars, an electronic address used for communication with Sars, or such other details as the commissioner may require by public notice.

It is also apparent that Sars expects all taxpayers to read their public notices, even those without access to the internet or newspapers.

Further, Section 234 provides that Sars may register and allocate a taxpayer reference number to a person who is not registered. Woe betide the person who doesn’t know this, as not using this number in any communication with Sars will turn you into a criminal.

In the Draft Memorandum on the objects of the Tax Administration Laws Amendment Bill, Sars reasons that using the term “wilfully” in respect of a statutory crime is not correct, and that it is not possible to “wilfully” neglect something, and that failing to do something required by the Act could be “problematic”.

Intent

Williams is of the view that: “This is patently wrong. One can purposefully fail to submit one’s tax return, or purposefully fail to pay one’s taxes. This looks like Sars is misstating the position, in order to make the proposed [unfair] amendment seem more reasonable.”

The National Prosecuting Authority (NPA) is of the view “that the current wording relating to criminal offences substantially undermines the ability of Sars to ensure compliance based on the objective standard expected of the reasonable person”.

“Consequently,” it says, “this may hamper the criminal prosecution of non-compliant taxpayers by the NPA in seeking to prove the elements of the crime.”

Williams is surprised: “Since when is it justifiable to remove certain elements of a crime in order to make it easier to prosecute?”

Is it possible that the NPA, which cannot point to a successful record in making powerful criminals account for their crimes, realises that it is not competent to pull off an ‘Al Capone’ tax arrest without removing ‘wilful intent’?

As for Sars, do its problems stem from the term ‘wilful intent’ scuppering its attempts at prosecuting the big boys – or from its lack of skills, inefficiency, and having been hollowed out by state capture?

One of the ironies of the times in which we live is that taxes on cigarettes and alcohol are to go up – even though there isn’t a hope in hell of government collecting any of this while there is a ban on cigarette and alcohol sales.

Proposed changes to tax laws have just been announced, making good on finance minister Tito Mboweni’s 2020 Budget promise to raise “sin” taxes on cigarettes and alcohol.

In his February Budget speech, Mboweni said a 340ml can of beer or cider would increase by 8c, and a 750ml bottle of wine would increase by 14c.

Excise on a box of 20 cigarettes would go up an extra 74c. Last week, government tabled the proposed changes to tax laws and rates, and invited public comment. Now might be a good time to make your voice heard.

Mboweni may not have known in February that a lockdown was coming and the tax collection projections he was banking on from cigarettes (and alcohol) would go up in smoke.

Then came the lockdown. Despite the ban on cigarette sales, 90% of smokers continuing to get their daily fix from their “dealers”. An estimated 11 million South African smokers have been criminalised, and Tax Justice SA (TJSA) estimates the loss to the fiscus of R5 billion so far. The loss is running at R35 million a day.

“The 132-day-old ban is causing untold misery for millions, robbing the fiscus of R35 million daily and destroying thousands of jobs,” says TJSA founder Yusuf Abramjee, after hearing court evidence led by cigarette manufacturer BAT against the government ban.

“Anyone who had to sit through two days of repetition, rambling and long-winded explanation by Minister Dlamini-Zuma’s lawyers will know how weak her case is,” says Abramjee. “Sadly for the three judges, they have a duty to consider the huge volumes of paperwork with which the Minister has tried to overwhelm them.

“But the President should not wait for their verdict, as patently the ban is so wrong and is doing so much harm. He should do the right thing and lift this failed prohibition immediately.

President Cyril Ramaphosa has promised to crack down on officials who break the law to profit from the pandemic after stories started emerging of politically-connected individuals scoring massive Covid-related supply contracts. Meanwhile, rumours abound of politically-connected suspects raking in profits from illegal cigarette sales.

Whether true or not, the tobacco industry in SA has been gutted, taken over by black market operators. SA Revenue Services (Sars) had spent the last decade trying to clean up the tax-dodging in this sector. It’s been set back at least a decade by the ban. The black market operators will not easily be dislodged, even when the ban is eventually lifted.

Many South African companies face unprecedented dangers amid the coronavirus crisis, with the economic impact of the lockdown on an already contracting economy.

In these circumstances it is vital for any company to plan their tax affairs carefully.

Hence the focus by Cova Advisory on new Carbon Tax details, which have only recently been published by the Treasury.

Understanding them is challenging, not least because there is not yet total clarity on all aspects of the regulations and how to claim each and every allowance.

However, failing to examine, to assess and then to act will mean that company executives are neglecting an opportunity to make savings – especially on a tax some corporates are resistant to pay in the first place.

A concern with the Carbon Tax is the way in which information and legislation has dribbled out, in a frustratingly unpredictable way after the tax has been implemented. It is vital that all the rules around the carbon tax are clear so that companies can plan to reduce their carbon footprint and thereby reduce their carbon tax liability. The fundamental purpose of the tax is to change behaviour, and by implication, a business will want to pay as little as possible.

We attempted to tackle this in a recent webinar, which looked at some of the allowances under the Carbon Tax Act, and the ways to reduce your carbon tax liability.  Some of the main messages are summarised below.

For anyone who is not familiar with the structure of the Carbon Tax Act, the tax is levied on the direct emissions of a company over a calendar year.

The act was signed into law on May 23, 2019, and became effective on June 1, 2019. The design of the tax includes a number of tax-free allowances, which effectively reduce the amounts which need to be paid over to the fiscus.

Regulations have been published for these tax-free allowances. Most recently, the regulations for trade-exposed sectors were published. In addition, we now have the regulation for the allowance if a company is able to emit lower emissions than others in their sector.

We almost have a complete picture, but one more part of the Carbon Tax that is crucial for claiming the allowances is yet to be launched – and that is the carbon offsets administration system and its associated guidelines.

So, what is new?

We now have a better idea of what it means for a company to be considered as trade-exposed, and how it must go about claiming the allowance.

Companies that are trade-exposed are those which face competition from products that are imported or exported. Companies that manufacture products locally and are subject to the Carbon Tax may become less competitive if the same products are being imported and are not subject to a Carbon Tax. For this reason, the National Treasury included a tax-free allowance of up to 10% for these companies.

There is a sector-based approach, where the trade intensity index of each industry sectors is defined, and the allowances are allocated using a sliding-scale approach.  However, there are provisions for companies which operate in more than one sector.

The approach seems logical, but there are still some uncertainties that exist with the determination of company-specific trade-exposure allowances, relating to the type of import, export and production data to be used. In addition, there isn’t clarity on auditing requirements.

Further calculation and analysis will also be needed by a company when it comes to claiming an allowance under the Performance Benchmark Regulations.

The regulations include a set of greenhouse gas intensity benchmarks for certain sectors, and the better a company performs against these benchmarks in containing its emissions, the higher the allowance – which is capped at 5%.

However, it isn’t always clear how these benchmarks are calculated as the methodologies will need to be requested, the measurement and verification requirements of the regulations are not defined, and some sectors have been left out.

In addition to all of this, there are further areas to explore in reducing your Carbon Tax burden.

There is a Renewable Energy Premium credit which will reduce the Carbon Tax for entities which generate electricity from green technology, such as wind and solar. Details of the rates for each renewable energy type have now been published and will be updated annually.

Finally, companies must consider the carbon offset allowance for firms that have undertaken a carbon-offset project – that is a project which results in emission reductions and which has been registered under an accredited standard.

The administrative rules on this are incomplete – as we still await a carbon offset administration system to create a South African based registry for carbon credits. It is the system that will be used to transfer carbon credits from an international registry into South African Carbon Credits which can then be used as a carbon offset allowance to reduce your Carbon Tax liability.

To conclude, then, companies need to ensure that as a starting point to manage their Carbon Tax liability, they need to quantify their gross tax liability and then fully understand which allowances are worth pursuing.

There are still some gaps and uncertainties in the Carbon Tax legislation – but one thing which is certain is that it can make financial sense to invest time and effort to get the most out of the trade exposure, performance benchmark and carbon offset allowances.

Zelda Burchell is manager at Cova Advisory.