September - Tax Administration Act - 10 things to know about the Tax Administration Act - Ernst & Young - South Africa

Tax Administration Act

By Jenny Alence and Christel Brits

The Tax Administration Act (“TAA”) came into force on 1 October 2012, and among its primary aims is efficient revenue collection.  Proactively managing tax risk, tax compliance and tax controversy are the keys to an effective tax function as we enter the new era of tax administration. Some important changes are highlighted below.

1. Effectively a self assessment system comes into play for all taxes excluding Customs and Excise, as a consequence, a full review of tax reporting systems and controls should become a priority.. This could prevent unpleasant surprises down the line and presents an opportunity for tax reporting lines, systems and controls to be restructured if appropriate.
2. Existing documentation retention policies need to be revisited, taking into account the longer documentation retention requirements and the criminal sanctions attached to instances of administrative non-compliance.
3. With regard to audits conducted by SARS,   the requirement for SARS to issue progress reports at 90 day intervals is to be welcomed.
4. Extended prescription periods mean extended periods of exposure to potential tax risk. The way is now open for SARS to re-open assessments in cases of ordinary negligence, which means taking care to ensure efficient reporting lines and the right skills level in your tax department cannot be overstressed. SARS is however limited to fifteen years for re-opening an assessment.
5. Understatement penalties replace the 200% additional tax and the extent of this type of penalty is now determined by taxpayer behaviour. Repeat cases as well as perceived obstructive behaviour could cost a taxpayer dearly. On the other hand, significant emphasis is placed on voluntary disclosure,  as a means by which taxpayers can escape burdensome penalties.
6. The TAA introduces a permanent voluntary disclosure programme, which will enable taxpayers to be proactive in the management of historical tax positions with which they may be uncomfortable.
7. A framework is created for SARS to engage more efficiently in cross border tax disputes by virtue of the African Multilateral Treaty on Mutual assistance to which South Africa is a signatory.  In addition, the TAA makes provision for the collection of taxes in South Africa of foreign tax debt, thus potentially bypassing numerous jurisdictional issues.
8. The TAA accords SARS extended information gathering powers and the danger exists that taxpayers will find themselves overwhelmed by the depth and extent of information requested. The concept of “foreseeable relevance” is important in this regard because taxpayers may need to rely on it to push back against potential fishing expeditions and to keep information requests within manageable bounds.
9. The TAA now makes clear what gives rise to a “practice generally prevailing “ ,such as an official publication, and when such a practice will cease,  by virtue, for example, of new case law that is inconsistent with the practice,  or because  the official publication is withdrawn. (see detailed article in this publication for the implications).
10. The TAA firmly embeds the “pay now argue later” principle into our tax system and consequently the importance of well motivated suspension of payment requests cannot be overstressed.