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Will new tax bill ‘catch crooks’ or lead to power trips?

by Evan Pickworth, 20 September 2012, 16:39
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IT MAY not always be admitted by bookish bean-counters in dark suits, but one of the things about being a revenue figure is the power rush you get.

A former senior figure in the South African tax department, now in the private sector, admitted as much at the Ernst & Young Tax Conference in Hermanus this week, and new tax rules to be adopted from October in South Africa will add to this power lust even more.

Of course, to catch the big bad corporate crooks with their powerful, smart lawyers in tow is not a mug’s game, and legislation needs to give tax officials sharp enough teeth to bite when necessary.

There is no question this is exactly what the coming Tax Administration Bill — which will be in force from the beginning of next month — gives senior tax figures. It’s also a heady dose of power tripping if ever there was one.

They will be able to raise the alarm bells off the bat quite easily, resulting in serious repercussions for anyone perceived to have been involved in tax abuse.

Some private-sector advisers have called the bill "draconian" as it gives "senior" (what exactly is senior in this context anyway?) tax advisers powers to search and seize, even privileged legal documents, if a designated lawyer is present, and also drives home the controversial "pay now, argue later" principle.

The minister of finance, whose right-hand man is the commissioner of revenue, must appoint the next tax ombudsman, which raises serious questions over independence.

Although the term is limited to three years, which is positive, the major problems relate to the fact this office will mainly be seconded and funded by the South African Revenue Service (SARS). Then there is the question of whether SARS will abide by the rulings, as this is not 100% clear. It must co-operate, but could still prosecute issues as it deems fit, regardless of what the ombudsman says (from what I understand).

A problem is that as anti-abuse laws mushroom in South Africa and worldwide, people implementing these laws are given too much power to wield.

This can only end badly. Already there seems to be a sense you can’t really get much tax business done in Africa, unless you have a pretty cosy relationship with these men in dark suits who wield a powerful legislative hammer over your affairs.

If tax authorities are not up to scratch yet, they should do so fast. To actually make a difference and ensure business is done efficiently, they will need to become the very epitome of independent arbiters.

In this regard, they have a long way to go.

A survey conducted across attendees at the conference, which includes tax experts from more than 30 countries, determined that 43% found their experiences in engaging with tax authorities in Africa bad; 31.7% were indifferent; and only 25.4% said their experiences were good.

Some elements of the new act will be good, for example, making voluntary disclosure compulsory, and pushing for more mediation and more specific dispute resolution mechanisms, such as advance rulings, outside the cumbersome court system.

And certainly, catching the crooks abusing the system benefits every honest taxpayer out there — that is to be applauded.

It’s just this power play that is worrying as it could see the innocent suffer collateral damage.

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