The budget speech for 2021 - 2022. what can one say other than, oh my goodness!
It was a year in which we experienced the hardships of hard lockdowns, alcohol prohibition, a downturn in the economy and a national drop in productivity, and, yes, of course, a decrease in revenue collections.
It was a year of many things, and there were very little to be positive about—a lot to be grateful for but not much to be positive about.
In listening to the budget speech and reading the supporting documents, one can only compliment the Minister for delivering such a budget in a time like this. He is a Minister in a country that is facing an economy much worse than 1917, and we do not wish this on any of our fellow countrymen.
From a tax perspective, there have been minimal changes. There is a prospective decrease in the corporate income tax rate for all years, commencing on or after 1 April 2022, which is a year and a month away. This will, however, be done alongside the broadening of the corporate income tax base, limiting interest deductions, and limiting the utilisation of assessed losses. This will broaden the tax base (quite substantially), and for companies thinking that losses incurred in the year of the hard lockdown will help, well plan your cash flow carefully, very carefully.
Assessed losses will, in all likelihood, be spread over a period bringing you into a tax-paying position much sooner than anticipated. The benefit from assessed losses will, therefore, in real terms, be significantly reduced.
Thank you, Mr Minister. We do welcome the 5% increase in the tax brackets to reduce the fiscal drag.
If we look at the national revenue collection, the majority of the income tax paid by individuals through provisional income tax or in the form of PAYE or provisional tax payments, which amounts to R516 billion. R370 billion is contributed by VAT, and the corporates will contribute around R213 billion in the country from the profits they realise. The balance of circa R265 billion's taxes will come from Customs and Excise duties, fuel levies, and the other odds and sods taxes.
Consider this; there is a drop in revenue collection, no increase in the tax base, no increase in tax rates and proposed limitations on the deductibility of interest, etc. One must ask yourself the logical question - Where will the money come from?
There is a limitation on the deductibility of connected party interest, the non-extension of the section 12 J Venture Capital Investment regime, plus a clampdown on, and the continuous noise about base erosion and profit shifting. One must see the warning signs.
One thing that is as certain as paying taxes is the fact that all things change. Our country is in distress, and we live in a world full of uncertainty and turmoil. We all have to adapt to the times and the challenges we face. Well, I think the same applies to income tax and the revenue authority in the country.
It is time that we wake up to the realisation that what was once acceptable is no longer acceptable.
What do I mean by this? Gone are the days you can at midnight on 27 February decide what provisional tax will be. Gone are the days that two days before your tax returns are due, you haphazardly slap together an income tax return.
The Tax Administration Act was amended, and negligence has been criminalized (can we criminalize stupidity to?). People in charge of the company's financial affairs can now be held personally liable for any penalties, interest and underpayment of the taxes of the companies that they serve.
How will SARS reduce the deficit? If they're not increasing the tax rate, then the answer is very simple. Enhance compliance, be more rigorous in compliance and bring tax evaders to book.
In my view, we can expect, and I have been singing this song for the last 5 to 7 years, that the level of tax compliance in the country will increase exponentially.
SARS is being placed in a position through the interface with third-party information to assess and evaluate the accuracy and the validity of income tax returns that are submitted.
Hence my reference to Tic Tax Toe. To be the “player” who gets the 3 marks in a row, you have to plan your tax affairs legally and appropriately with due care and consideration, failing which, you will be exposed to a plethora of implication, including underestimation penalties, late payment penalties etc., a deliberate understatement of income due to negligence and or any other reason; your penalties will start at 25%.
If you seek to alter the implications of a transaction after it has occurred, you are seeking to evade tax. If, however, you have applied your mind and a transaction is structured correctly, i.e. the terms and conditions are agreed between the parties, at an arm's length price before the conclusion of the transaction, the tax consequences of the transaction will follow the legal form and if that results in an equitable spread of the tax implications across individuals, corporate and or multijurisdictional entities that is perfectly acceptable.
Please link all the complexities stated above with the complexity of dealing with SARS in objections and appeals, and you could very well be left in the highly a frustrated and compromised position where you will effectively be taxed by negotiation. The outcome and objectivity of which remains questionable.
My advice to you is to ensure that your tax planning is done properly, that your filed tax returns are complete and accurate in every respect.
Where you adopt a tax filing position, ensure that such a filing position is substantiated by a tax opinion. Get your opinions from a creditable and reputable tax specialist.
Planning is NOT morally or ethically questionable. Every person in the country has the right to structure their affairs in such a manner as to pay the appropriate amount of tax as is required to be paid on the application of the Income Tax Act to their economic activities.
Tic Tax Toe – may the best “planner” win.