Tag Archive | SARS

Border Management Authority around the corner

SARS role at border posts being clarified ….

In adopting the Border Management Authority (BMA) Bill, Parliament’s Portfolio Committee on Home Affairs agreed with a wording that at all future one-stop border posts, managed and administered by the envisaged agency and reporting to Department of Home Affairs (DHA), were to “facilitate” the collection of customs revenue and fines by SARS staff present.

However, on voting at the time of the meeting, Opposition members would not join in on the adoption of the Bill until the word “facilitate” was more clearly defined and the matter of how SARS would collect and staff a border post was resolved.

Haniff Hoosen, the DA’s Shadow Minister of Economic Development said that whilst they supported the Bill in general and its intentions, they also supported the view of National Treasury that the SARS value chain could not be put at risk until Treasury was satisfied on all points regarding their ability to collect duty on goods and how.

Keeping track

Most customs duty on goods arriving at border controls had already been paid in advance, parliamentarians were told; only 10% being physically collected at SA borders when goods were cleared.

However, with revenue targets very tight under current circumstances both SARS and Treasury have been adamant that it must be a SARS employee who collects any funds at border controls and the same to ensure that advance funds have indeed been paid into the SARS system.

The Bill, which enables the formation of the border authority itself, originally stated that it allowed for the “transfer, assignment and designation of law enforcement functions on the country’s borders and at points of entry to this agency.”

Long road

It was the broad nature of transferring the responsibility customs of collection from SARS to the agency that caused Treasury to block any further progress of the Bill through Parliament, much to the frustration of past Home Affairs Minister, Malusi Gigaba.   It has been two years since the Bill was first published for comment.

DHA have maintained throughout that their objective is to gain tighter control on immigration and improve trading and movement of goods internationally but Treasury has constantly insisted that customs monies and payments fall under their aegis. The relationships between custom duty paid on goods before arrival at a border to Reserve Bank and that which must be paid in passage, or from a bonded warehouse was not a typical DHA task, they said.

Breakthrough

It was eventually agreed by DHA that SARS officials must be taken aboard into the proposed structure and any duties or fines would go direct to SARS and not via the new agency to be created or DHA.

This was considered a major concession on the part of DHA in the light of their 5-year plan to create “one stop” border posts with common warehouses shared by any two countries at control points and run by one single agency. More efficient immigration and better policing at borders with improving passage of goods was their stated aim.

Already one pilot “one stop border post”, or OSBP, has been established by DHA at the main Mozambique border post by mixing SAPS, DHA and SARS functions, as previously reported.

To enable the current Bill, an MOU has been established with SAPS has allowed for the agency to run policing of SA borders in the future but Treasury subsequently baulked at the idea of a similar MOU with SARS regarding collection of customs dues and the ability to levy fines.
Bill adopted

At the last meeting of the relevant committee, Chairperson of the PC Committee on Home Affairs, Lemias Mashile (ANC) noted that in adopting the Bill by majority vote and not by total consensus, this meant the issue could be raised again in the National Council of Provinces when the Bill went for consensus by the NCOP.

Objectives

The Agency’s objectives stated in the Bill include the management of the movement of people crossing South African borders and putting in place “an enabling environment to boost legitimate trade.”

The Agency would also be empowered to co-ordinate activities with other relevant state bodies and will also set up an inter-ministerial committee to handle departmental cross-cutting issues, a border technical committee and an advisory committee, it was said.

Mozambique border

As far as the OSBP established at the Mozambique border was concerned, an original document of intention was signed in September 2007 by both countries. Consensus on all issues was reached between the two covering all the departments affected by cross-border matters.

Parliament was told at the time that the benefit of an OSBP was that goods would be inspected and cleared by the authorities of both countries with only one stop, which would encourage trade. In any country, he explained, there had to be two warehouses established, both bonded and state warehouses.

Bonded and State warehouses

Bonded warehouses which were privately managed and licensed subject to certain conditions, were to allow imported goods to be stored temporarily to defer the payment of customs duties.

Duties and taxes were suspended for an approved period – generally two years but these had to be paid before the goods entered the market or were exported, MPs were told. The licensee bore full responsibility for the duty and taxes payable on the goods.

State warehouses on the other hand, SARS said at the time, were managed by SARS for the safekeeping of uncleared, seized or abandoned goods. They provided a secure environment for the storage of goods in which the State had an interest. Counterfeit and dangerous or hazardous goods were moved to specialised warehouses.

Slow process

MPs noted that it had taken over six years for the Mozambique OSBP to be finalised. SARS said there were many ramifications at international law but added two discussions with Zimbabwe for the same idea had now taken place. It was hoped it would take less time to reach an agreement as lessons had been learnt with the Mozambican experience.

On evasion of and tax, SARS said in answer to a question that losses obviously occurred through customs avoidance and evasion, so it was consequently it was difficult to provide an overall figure on customs duty not being paid, as evasion was evasion. Smuggling of goods such as narcotics, or copper, which could only be quantified based on what had been seized.

The same applied to the Beit Bridge border with Zimbabwe where cigarette smuggling was of serious concern and through Botswana.

In general, it now seems that Home Affairs is to adopt an overall principle of what was referred to as having one set of common warehouses for one-stop declaration, search, VAT payment and vehicle movement with a SARS presence involving one common process for both countries subject to a final wording on the SARS issue before the Bill is submitted for signature.

Previous articles on category subject
Border Authority to get grip on immigration – ParlyReportSA
Mozambique One Stop Border Post almost there – ParlyReportSA

Posted in Finance, economic, Fuel,oil,renewables, Home Page Slider, Justice, constitutional, Mining, beneficiation, Public utilities, Security,police,defence, Trade & Industry, Transport0 Comments

Foreign assets amnesty Bill underway

Timing of window period resolved as 30 June

…..sent to clients 15 Sept…  The Standing Committee on Finance has now behind it the call for comment on a revised draft Rates and Monetaryfinancial-darwin Amounts and Amendment of Revenue Laws Bill which proposes a Special Voluntary Disclosure Programme (SVDP) for financial amnesty  in respect of offshore assets and income.     The process is therefore well underway for the introduction or tabling of the final Bill from Treasury.

The draft Bill was coupled with a second draft for comment, the Draft Rates and Monetary Amounts and Amendment of Revenue Laws (Administration) Bill, which handles implementation of the amnesty. 

gordhan2The original proposals were made by Treasury in June of this year following the statement made by Minister Pravin Gordhan in the 2016 National Budget. The idea is to again encourage non-compliant tax-payers to voluntarily disclose offshore assets and income, with a window period of opportunity to do this bearing in mind that the global standard for automatic exchange of information between tax payers is coming into force in 2017.

Alterations made

Changes to the original proposals are a re-definition of trusts to include those located externally; tax relief will apply to tax assessments going further back in date and undeclared amounts derived from foreign assets will apply for the financial years from March 1 2010 to Feb 28 2015, the common date for tax assessments.

Foreign assets

In the case of foreign assets, the tax applied was to be applied at 50% of the highest value of all assets offshore, the foreign currency conversion rate forsars-logo valuation being the highest Rand spot rate of the years applied for and declared.    A request to reduce this to 40% has been accepted by Minister Gordhan.       Treasury feels that anything less will cause discomfort those who have declared foreign assets correctly and have paid normal tax rates in the meanwhile.

Taxpayers who disposed of any foreign held assets prior to 1 March 2010 will also be able to apply for relief under the SVDP window, any tax to be payable in South Africa.    The application form is called the Voluntary Disclosure Application Form (VDP01) and can only be accessed via the SARS e-filing system if the current system is to be used for this particular SVDP.

More time

Financial advisors and banks have also pointed to the lengthy processes involved in filing applications, particularly where foreign asset valuations are involved and Treasury have indicated that the window period will run now from 1 October to 30 June 2017 to accommodate this.

The gazette states, “The SVDP (and the acceptance of electronic SVDP applications using the SARS e-filing platform) will commence on 1 October 2016 and will continue until 30 June 2017.    South African residents (individuals, sole proprietor, partnerships, deceased estates, insolvent estates, South African trusts, close corporations and companies) and former South African residents will be allowed to disclose their foreign assets held in contravention of the Exchange Control Regulations, 1961 (Regulations) as at 29 February 2016. Exchange control applications to the SVDP Unit are to be made pursuant to the provisions of Exchange Control Regulation 24 (Regulation 24).”

Particularly relevant is the addenda, “Please note that any party involved in a foreign exchange transaction that is currently under investigation by FinSurvmoney may not apply for administrative relief.”

From the proposals, it can be seen that R10m plus R1m a year is the maximum size of legal offshore investments that can be made by SA residents currently under the Act. This cannot be used to “offset” against any levy rendered against a disclosure, says SARS.       Corporates can still invest up to R1bn without informing the Reserve Bank.

Safe with SARS

SARS has said the average turnaround time is currently about 16 working days per case submitted.

Nothing has yet discussed in any way before the Standing Finance Committee on the issue of the Panama Papers, nor probably will it be, but the 1,700 South African names purported to be on record now with SARS from the Papers has been cited by some as a possible reason the Bill had not been tabled.

It is quite clear from the gazetted statement that no claims for amnesty are possible in general terms whilst an ongoing SARS investigation is in process.  ThisAfrica Money might disbar certain high profile cases therefore.

A final Bill is therefore now anticipated in Parliament for hearings, debate, concurrence by the NCOP and passage to the National Assembly for a vote since, presumably, nothing will happen until the Act is amended by both Bills.
Previous articles on category subject

Parliament debates three financial market and tax Bills
Budget 2016: more on amnesty – ParlyReportSA

Posted in Finance, economic, LinkedIn, Special Recent Posts, Trade & Industry0 Comments

Anti Corruption Unit overwhelmed

Focus on top down elements of patronage 

….editorial….As Parliament went into short recess, the Anti-Corruptionhawks-2
Unit, the combined team made up of SARS, Hawks, the National Prosecuting Authority and Justice Department, divulged that some 400 cases of public service corruption have been “successfully prosecuted since 2014”.

Out of hand

To have that number of public service thieves arrested is no small number but there is a worrying afterthought.   One wonders how many Anti Corruption Unit cases have been dropped or unsuccessfully prosecuted, given the fact such icebergcases are difficult to prove and there is often poor performance of by investigation teams. Like an iceberg, probably only one seventh of corruption in the public service is apparent.

sars logoCases currently under investigation in both the public and private sectors were given as 77, now 78 since Tom Moyane, head of SARS and member of the Anti Corruption Unit itself, at the time admitted to the Committee that he had not spoken to the Hawks about his second in command, Jonas Makwakwa.

Laundry list

The question by MPs was about the mysterious R1,2m deposited into Makwakwa’s private banking account.  According to reports it appears Moyane has subsequently rectified the situation and reported the event.  So yet another enquiry must start, which will only exacerbate the relationship problem between Moyane and the Minister of Finance, Gordhan Pravin.

Added to these national events in Parliament is the fact that corruption investigation remains particularly problematic at provincial and local government levels where it can go on undetected. The story emerging from the Tshwane Municipality is a case in point. The National Council of Provinces has no part to play in such matters.

Top down problem

Over the last few weeks, events in the parliamentary precinct have dominated the domestic media and consequently there is no need to repeat what is patently obvious.  South Africa clearly faces a leadership problem as far as financial governance and policy initiatives are concerned.

hawks logo
Doubt has placed, in the media in main, on the leadership integrity of the Hawks, NPA and, to some extent, with the Anti Corruption Unit inasmuch as their relationship with the President is concerned. A weary public waits for the next story of public service patronage.

Public service heads appear at times uncomfortable when they are reporting to Parliament and seem to be looking over their shoulder at times to see if what they have done or said is politically correct. Troubling is the fact that regulatory bodies are at odds with the ministries that founded them.

Bottomless pits

Although progress has been made on the national level in developing legalmoyane frameworks with provisions and regulations to address theft of public funds, such as the Prevention and Combating of Corrupt Activities Act and the Public Finance Management Act (PMFA), the good guys are still behind in the race to catch the bad guys.   A sad conviction rate of 28% on cases brought before the court by the Assets Forfeiture Unit overall was quoted to the Standing Committee.

Poor leadership

On the same subject, the surprising failure by the President to sign into law the Financial Intelligence Centre Bill to fight money laundering in terms of international prudential agreements has represented a further setback. Hopefully this is only temporary since the country needs to join up the dots to encircle organised corrupt financial activity.

Worse, some government SOEs appear to conducting their own affairs without approval by Treasury. Cabinet members are involved. Witness the extraordinary offer made by the Central Energy Fund, reported in the media, to Chevron for its refinery in Cape Town and downstream activities in the form of 850 fuel outlets, presumably backed by the funds emanating from the sale of the Strategic Fuel Fund (SFF) reserves unauthorised by Treasury.

Upstream mayhem

Tesliso MaqubelaDDG Tseliso Maqubela of Department of Energy has now told the media that SFF sold the 10 million barrels of crude in storage in December at rock bottom price of $28 a barrel to a unit of Glencore, Vitol and a company called Taleveras. The condition of the sale was apparently, Maqubela said, “that the oil (will) not be exported and so the government considered it remaining as part of its strategic reserve stockpile.”

Shadow Minister of Energy, Pieter Van Dalen MP, citing Business Day, said the sale has been connected with Thebe Investment Corporation – “the ANC linked investment arm”, he added.   Vitol is the company that has allegedly bought the fuel stock and which owns Burgan Cape Terminals next to Chevron, the deal being linked by Van Dalen with Thebe for the building of its new storage tanks. Burger had just been awarded a 20-year lease by Transnet for land needed.

cape-town-harbourChevron brought to Parliament its case against Burger saying it was improper to build a new tank terminal next to its refinery for Burger to store oil for trading whilst they had no Transnet pipeline to Gauteng as did others from Durban but the chair of the portfolio committee accused Chevron of monopolistic behaviour. Subsequently the complaint was rejected. It was shortly after that Chevron announced its intention to sell its refinery.

Twisting path

Whether the Minister of Energy, Tina Joemat-Pettersson knew all of this when she appeared before the Portfolio Committee of Committee on Energy,tina-joematt her attendance covered in this report, is a moot point.   If she did know something, she is culpable in that she withheld the information, both from Parliament and possibly Treasury.

Alternatively, if she didn’t know that an offer was made to buy Chevron and that SFF had sold the state’s oil fund’s reserves to Swiss giant Vitol, possibly involving Thebe Investments, she should resign immediately as an incompetent.  Where the R4.4bn odd involved in the sale by SFF has landed up is not clear and when the oil will leave SFF’s Saldanha terminal and move to Burger in Cape Town is also not clear.

Clearly, in our view, this has been a major transaction known about at Cabinet level and the DA has called for an urgent enquiry. This will presumably bring the Asset Forfeitures Unit’s number of cases under investigation up to 79.   And so it goes on.  Tegeta and Eskom included.

Nothing but the truth

One senses a continuing cover up by government departments in reporting to Parliament for fear of upsetting any Minister’s apple cart, whereas Parliament should be a refuge of openness, accountability and public oversight on state activities and act as an arbiter to represent the people of South Africa.

vincent-smithIn the darkness, we saw a flash of light and a refreshing change when ANC MP, Vincent Smith, in grilling the Hawks as part of the Anti Corruption Unit interview, reminded them fiercely “This Is Parliament. If you cannot speak the truth, then do not speak at all.”  Whilst that remark may encapsulate the current problem, it may be also the cause of some Ministers and government officials choosing not to speak at all.

Legal jungles

Concurrent with the number of judicial enquiries into strange contracts, bad senior appointments, misuse of privileges and a litany of unaccountable expenditure without proper approval, what also has increased is the statement used by many when speaking to Parliament, including ministers, that the full facts cannot be given “because the matter is sub-judice”.

The number of matters that are sub-judice would not be so great if powers were given back the Treasury to re-assume its proper place in the parliamentary process.  Expenditure, if not approved by Treasury, would never see the light of day.

In conclusion

parliament 6Bad governance and corruption is the fodder that feeds the right wing anger sweeping the world and creates the spectacle that we see almost daily in our National Assembly, the creation of which institution is supposed to be one of the three pillars supporting the Constitution.

Previous articles on category subject

 Parliament, ConCourt and Business – ParlyReportSA

Parliament and the investment climate – ParlyReportSA

Anti-corruption law is watered down, say critics – ParlyReportSA

Nkandla vs NDP: the argument rages – ParlyReportSA

Parliament closes on sour note – ParlyReportSA

 

 

 

Posted in cabinet, Earlier Stories, Facebook and Twitter, Finance, economic, Fuel,oil,renewables, Home Page Slider, Justice, constitutional, LinkedIn, Public utilities, Special Recent Posts, Trade & Industry0 Comments

Carbon tax offsets on the way

Tax offsets plan almost ready for Parliament

sent to clients 12 Aug     Only a little reminding is needed that 29 July 2016 was the deadline for comments to carbontax1Treasury on the forthcoming carbon tax offsets plan which Minister of Finance, Pravin Gordhan, has promised will come into effect 1 April 2017 with some saying it might even be as early as 1 Jan 2017.

It was in 2014 that National Treasury published the first carbon tax discussion paper for public comment. It was agreed the that such a tax would be phased in over a period of time, the first phase running up to 2020. The marginal rate was the envisaged at R120 per tonne of CO2 and during phase-one, a basic percentage based threshold of 60% will apply for tax offsets below which tax is not payable in order to assist with transition into the new scheme.

SARS as usual

Everything has been based on South Africa’s commitment to the Copenhagen agreement signed in 2009 to reduce greenhouse gas emissions by 34% by 2020 and 42% by 2025 – below the “business as usual” scenario.   The motivation provided for the tax remains as “so the cost of climate change an be reflected in the price of goods and services”.

sanedi carbon capIt was agreed that the tax would be administered by SARS.    Since that date, whilst the pro and cons of such a tax caused heated debate in some circles as to whether an introduction of a price mechanism could influence consumer and producer behaviour, the inclusion of Eskom in the tax net left many feeling somewhat helpless due to the utility’s enormity.

Eskom maybe dictates

OUTA complained that “Eskom’s various electricity tariff increases of almost three times the rate of consumer price inflation over the past eight years has become a tax of its own on society.”

They added that the electricity increase impact had resulted in fact to a reduction in electricity and energy as a result and this, which coupled with reduced production and consumption, had inadvertently caused a reduction of greenhouses gases having already taken place, OUTA said.   Of course, this remains totally unproven.

Neither Cabinet nor Treasury/SARS have replied to OUTA’s call to note “unintended consequences”.  No Treasury official it appears has felt that the Copenhagen Agreement can be dis-respected and have presumably felt that OUTA’s platform that a drop in national growth, due to global events and construction problems, has had little to do with the actual design of an overall process to cut carbon emissions over the next period of fifty years or so. The argument continues.

Quantifiable is the word

Now the first phase of the tax offsets are being set in concrete with Treasury having called for comment on theemissions final formula for the first phase of tax proposals, proposing, as before in the draft, that companies can reduce their liability for carbon tax by up to 5% or 10% of their total greenhouse gas emissions, depending on their sector, by investing in qualifying projects that result in quantifiable greenhouse-gas reductions.

Treasury says that the qualifying investments and offsets are likely to be in sectors such as agriculture, public transport, forestry or waste management and the accompanying documents note…“The proposal to use carbon offsets in conjunction with the carbon tax has been widely supported by stakeholders as a cost-effective measure to incentivise GHG emission reductions.”

How not to pay tax….offsets

“Carbon offsets involve specific projects or activities that reduce, avoid, or sequester emissions, and are developed and evaluated under specific methodologies and standards, which enable the issuance of carbon credits”, SARS concludes.

It is worth noting that tax legislation usually comes in the form of a “money” Bill which Parliament can debate butgreen scorpion not amend. Should the debate raise issues, then Parliament can address Treasury who will, according to their dictates, reconsider and change if they alone see fit.  

The general feeling seemed to be from hearings was that this event had to happen in line with other established economies, although OUTA has remained strong on its views that Eskom as a major player in the energy mix is distorting the situation.

The Treasury website has all the details of rules on which tax regulations will be based.
Previous articles on category subject
Treasury’s plan for carbon tax – ParlyReportSA
Carbon offsets paper still open – ParlyReportSA
Carbon Tax under attack from Eskom, Sasol, EIUG – ParlyReportSA
Treasury sticks to its guns on carbon tax – ParlyReportSA

Posted in Energy, Enviro,Water, Finance, economic, Fuel,oil,renewables, Mining, beneficiation, Special Recent Posts, Trade & Industry0 Comments

Budget 2016: more on amnesty

 sent to clients 8 April….

Deadline extended for amnesty…..

In the 2016 Budget presentation, which included an amnesty offer on undeclared overseas funds, it was claimedpravingordhan by the main opposition party that that this year’s financial plan may not have been bold enough to avert a downgrade, top of the mind remaining possible future tax hikes, particularly VAT – on which the jury is still out – and the ballooning public service wage bill.

Among the many other points raised in this year’s budget was the remark by Minister of Finance, Pravin Gordhan, that “The principles of honesty and fairness needed to be embraced by all South Africans in order to overcome the challenges.”

The amnesty plan

To follow this up with action, Treasury have made a second offer for all those with undeclared assets abroad to get on the right side of the law without penalties and now have extended even that deadline because more time is often needed for applicants to prepare submissions.

“In acting together”, the Minister said, “we can address declining confidence, the retreat of capital and we can combat emerging patterns of predatory behaviour and corruption.” On this issue, he offered amnesty on undeclared offshore income and assets and another chance of the regularisation of offshore affairs.

Very little reaction occurred in parliamentary benches, possibly because the implications meant little personally but in having had to sweep the floor for further tax revenue inputs, any idea that works is a good one and a “voluntary disclosure programme” (to give it it’s technical name) could raise between R2bn to R4bn, once applied. Clearly also the Minister is looking for more reaction to increase funds resulting in the deadline being moved along the calendar.

Budget papers

budget 2016This offer was included with the usual raft of Bills the Minister tabled before he commenced his Budget speech and a few days later debated by the Standing Committee on Finance. They are “money” Bills and cannot be altered by Parliament, only commented upon.

Gordhan warned in his speech that “in terms of the new global disciplines on exchange of information between countries time was running out for tax dodgers who still have undeclared assets outside South Africa.”

Details

There are a number of conditions of course.

SARS will only include 50% of the total amount used to fund the declared acquisition assets before March 2015 in the taxable income column, as it were, and this will subject to normal tax. All refers to items from March 2010 onwards as taxable income at normal rates. Investment returns prior to March 1 will be exempt. Interest arising from tax debts as a result of the voluntary disclosure will only commence from March 2010.

Bearing in mind that relief is also granted from the appropriate penalties that would have applied and any criminal action not taken, this say experts, is a pretty fair offer. Levies will be applied of between 5% and 10% according to whether the funds from proceeds are repatriated or not, which levy must be paid from outside external funds. On levies generally, there are a number of special conditions according to circumstances.

Not just business

Minister Gordhan made it quite clear that the offer was coming from both the Treasury and the Reserve Bank. He said that deceased estates and beneficiaries of discretionary trusts can participate in the programme if they deem and if they admit that the funds were destined for them. Resident South Africans are included in the amnesty.

The grace period was given originally in the Budget for the period October 1 to March 31 of the current government financial year but in hearings before Parliament later, the Standing Committee on Finance listened to business submissions on the Budget and “recommended” to Treasury that this is impractical given the amount of time it takes to come up with all the necessary information and submit, bearing in mind, as we say, Parliament cannot touch a money Bill. Treasury obviously heard this

Public submissions worked

It was chairperson of the Finance Standing Committee, Yunus Carrim, who pointed this out to Treasury after listening to public submissions, so at least he will find that more applicants will probably be encouraged to submit.
Previous articles on category subject
Budget vote speeches: Out of touch with each other – ParlyReportSA
Minister Nene maps survival route – ParlyReportSA
Parliament votes on 2014 budget – ParlyReportSA

Posted in Finance, economic, LinkedIn, Special Recent Posts0 Comments

SARS understaffed to deal with transfer pricing

Davis report on transfer pricing confirms …

NB: This article updated after two recent meetings of committee on transfer pricing. Report with clients.

JudgeDennisDavisSouth African Revenue Service (SARS) was completely lacking in sufficient staff to deal effectively with transfer pricing in order to spot illegal transactions, said Judge Dennis Davis in his capacity as chairperson of the Tax Review Committee when addressing the Parliamentary Portfolio Committee on Mineral Resources.

He also pointed out that SARS, in any case, was also not provided with sufficient information by declaring companies, particularly multinationals as legislation stood at present, to further probe cross-border transactions to determine whether the movements involved the illicit transfer of profits from high-tax to low-tax regimes.

He told parliamentarians that whilst about three years ago SARS had conducted a very specific and targeted investigation, and had raised in one financial year alone some R1.1bn, this only illustrated the far larger amount of “haemorrhaging” that was taking place.

Not transfers but manipulation…

The Judge had to explain to MPs time and time again that transfer pricing in itself was not illegal, only any manipulative tax behaviour usually involving non-declaration or undervaluation.

Judge Dennis Davis referred to the recent highly publicised case involving HSBC where some R23bn directly involved the SA fiscus “and which was under review by SARS”.  He also drew attention to the fact that as a result of disclosures during the Marikana inquiry, Lonmin appeared to have profited by some R280m in saved taxes by transfers.

railfreight“Fictitious transfer pricing declarations were the problem”, he said, where multinationals managed to declare profits which appeared lower in countries with higher tax rates and higher in countries with lower tax rates. This occurred where the culprits identified transfers of intangibles for less than full value; showed over capitalisation of tax group companies and declared contractual arrangements with low risk tax environments.

Digging deeper

The Davis Tax Committee had recommended to National Treasury Department that the current unit in SARS, dedicated to base erosion and profit shifting be strengthened. At present this constituted only twenty personnel. “Building up this team would enable SARS to dig deeper into companies’ affairs”, he said.

Billy JoubertBilly Joubert, Tax Director, Deloittes, pointed to the fact that transfer pricing was in fact a “neutral” instrument in terms of its intention to promote industrialisation because its purpose was in fact to achieve arm’s length profits across the value chain.

Transfer pricing rules based on international best practice provided investors with certainty and it also protected the tax base of the relevant country, he said.   It was therefore an essential part of any tax system, providing taxpayers did not manipulate prices by shifting profits to lower tax jurisdictions. He condemned the practice.

Arm’s length reporting in question

Joubert said South Africa was an observer and an active contributor to the OECD and their transfer pricing guidelines was a resultant consensus document. It was critical for SA to align with the tax policies adopted by their trading partners where they could, endorse “the arm’s length principle” adopting the guidelines in their own domestic environment and follow global standards.

He said that SARS had achieved the collection of approximately R5bn over the last three years from some 30 audits and adjustments of R20bn.

He concluded that SARS’s new rules “were now more closely aligned to the global standard and possibly ahead of many other countries”, noting, however, there was a lack of certainty in terms of outdated practice notes; limited guidance on implementation of “secondary adjustment mechanisms”; and also a lack of interaction with double tax agreements which were closely allied to the process.

Back to understaffing…

Prof Johann Hattingh of UCT pointed to the fact that the Davis Tax Committee recommended full compulsory OECD style taxpayer information disclosure and there “was more than enough in the legislative armoury of SARS to effectively combat intercompany mispricing or tax abusive behaviour”.

However, he also pointed to the fact that SARS was understaffed and simply outnumbered by input of declarations to effectively implement transfer pricing legislation across a broad spectrum.

Prof Hattingh explained that insofar as tax interpretation was concerned it was a complex and ultimately subjective evaluation because of the difficulty in identifying intangibles and services which were transferred or provided and the arm’s length price at which they were valued. Even the whole definition of an “arms length transaction” was subject to difficult legal, accounting and tax interpretation, he pointed out.

OECD the genisis

He said all BRICS countries, except Brazil, took the OECD guidelines as a starting point, Brazil using fixed international commodity prices which provided more certainty but which conflicted in many cases with double tax agreements, since double tax could arise in one of the countries involved in transfers.

EFF member Freddie Shivambu said that in terms of SARS, staffing with skilled personnel was not the only problem as far as could see but there was a lack of clarity on the way forward.  Judge Davis replied that there were indeed criminal elements involved, such as illegal siphoning of money and under-declaration of assets, but his committee had established “empirical evidence” that the amount lost to the fiscus was not always as high as it was reported to be.

But the way forward, he re-empahsised, involved updating wording of legislation; the ability to follow up on “arms length transactions” and more staff to do this. His Committee’s report was with the President.

ANC says transfer pricing is manipulation

Some ANC members pointed to the fact that some multinationals were making “massive profits and not contributing to the country’s agenda to address poverty, inequality and unemployment and transformation” and that transfer pricing should be banned. Others called for it to be declared “illegal”.

They were corrected again by Judge Davis who explained that transfer pricing was a legitimate necessary process for companies doing legitimate transactions and as such it could not and would not be “banned” or illegalised.

D Macpherson DAMr D Macpherson (DA) joined the debate to say that the issue of illicit transfer pricing should not become a political matter but that it was a national concern for all, pointing to the fact that whilst transfer pricing was one issue, the country was losing some R6bn through other forms of corruption.

It was all part of the same problem, he said, and the country had to take a stand against all illicit activities that deliberately robbed the government of revenue.

Not just mining worldwide

Meanwhile Judge Davis agreed with ANC members that “additional revenue was needed to redress historical injustices” but the World Bank had reported that South Africa had addressed this challenge better than most countries, including Brazil. There was no evidence to suggest that transfer pricing affected the mining industry notably.

He was joined by Billy Joubert of Deloittes who stated that such a transaction should not be criminalised because they were cross-border transactions, which was essentially transfer pricing, and re-emphasised that they were “neutral” until  assessed and found to be illicit or not.

National Union of Mineworkers said transfer prices should in principle match either what the seller would charge an independent, arm’s length customer, or what the buyer would pay an independent, arm’s length supplier. He claimed that transfer pricing defeated the objectives of the Minerals and Petroleum Resources Development Act.

“All it meant”, said the NUM spokesperson, “was retrenchment of employees; low and unequal salaries: inadequate investment on skills development; poor implementation of social and labour plans and less investment on health and safety standards, resulting in injuries and fatalities.”

brigette radebeBridgette Radebe of South African Mining Development Association (SAMDA) said her records showed that “out of 151 countries, South Africa lost, on average, the twelfth highest amount of money through illicit financial outflows”. She disagreed with Joubert of Deloittes on the ‘neutrality’ of transfer pricing and the effects and that the statement that the mining industry was a “small player” was incorrect.

She said the mining industry contributed 17% of GDP and 38% of exports, plus 19% of private investment with R78 billion spent in wages and salaries. “These figures were totally eroded and made misleading by transfer pricing”, she said.  She provided the parliamentarians with a series of figures explaining how transfer pricing in the mining industry took place and claimed that manipulation was often the practice.

SAMDA suggested the immediate alignment of the mining charter with the B-BBEE Codes of Good Practice with transfer pricing and to address the issue of penalties contained in the charter for non-compliance.  Much agreement from ANC members took place.

Multinationals under attack

One ANC member stated that “the bulk of South Africa’s mineral resources were in the hands of foreign nationals and it was good that SAMDA and organised labour came together and addressed the issue of transfer pricing in terms of the South Africa’s economy.”

A department of mineral resources (DMR) staff member attending was called upon by the chair to respond, who stated that all the issues raised would be discussed by his department and in the light of success with penalties under the Mine and Safety Act, increased penalties for breeches in declarations might be considered.

Cooperation possible

DMR and SARS had been working together, the spokesperson said, on the whole issue of transfer pricing, a memorandum of understanding between the two departments having been established.

SAMDA said that some multinational companies often wished to “manipulate prices to such an extent that there was no income for beneficiation or share distribution and consequently loans on shares could not be repaid.”

Other articles in this category or as background
http://parlyreportsa.co.za/uncategorized/sars-to-be-given-right-to-search-without-warrant/
http://parlyreportsa.co.za/securitypolicedefence-2/customs-duty-bill-cuts-inland-ports/
http://parlyreportsa.co.za/finance-economic/promotion-and-protection-of-investment-bill-opens-major-row/
http://parlyreportsa.co.za/finance-economic/financial-sector-regulation-bill-heralds-twin-peaks/

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Five Rand

Parliament steps up its financial oversight role

Nene briefs parliamentary oversight chair Carrim…

Commencing its work for the fifth Parliament, the standing committee on finance passed a resolution, before the recent recess, following a strategic plan briefings from SARS and Statistics SA, to step up its oversight on treasury and all other government institutions concerned with finance.

Whilst Parliament’s oversight role on the executive is a constitutional requirement, new chair Yunus Carrim, a diligent parliamentarian who has a record of running a particularly “tight shop”, appears to be fully aware of the mood of the public on state funding and that consequently the current oversight situation is not “business-as-usual” .

Reporting to Carrim and the joint standing committee, finance minister, Nhlanhla Nene, said South Africa’s economy was growing at a moderate pace but was still performing below expectations.

Picture changing

He said South Africa had to grow faster in a way that advanced the interests of the poor and which eliminated poverty. He also asked MPs to be aware that treasury’s strategic plan had been developed at a time of a better global outlook.

He said that whilst the global economic environment is showing signs of improvement, it also remains below optimal levels.   “South Africa is not an island, cut-off from the rest of the global economy”, he said.  “So our economy is performing way below the level of growth that is required to deal with the country’s triple challenges of unemployment, poverty and inequality”.

SARS, he said, was poised to collect R1 trillion in revenue but the volume of national government debt would increase from between R1.4 trillion to R2 trillion in 2016/17, the equivalent of 43% of GDP.  Projected growth figures, minister Nene told parliamentarians, would be provided when the Medium Term Budget Policy Statement was tabled later this year.

At this stage he saw no cutting back on budget votes as provisions were in place to cut back should the situation demand it.

Big backing for state lending

In the current financial year, minister Nene said, the government will recapitalise the Land Bank with R500m and DBSA with R2.5bn.    He said he would also “continue to engage with the various unions and stakeholders to in an attempt to enable a government retirement system to offer good value and protection for retirement savings.”

Finally, he said, he was committed filling all vacant positions in treasury “in order to enhance the functioning of the institution” which he saw as a pillar of the economy.   However, “stringent measures” were already in place to control over-spending or wasted expenditure by the public sector.

Treasury DG, Lungisa Fuzile, in presenting detail of treasury’s plan for the next five years, said there would be more reform of the financial sector so that it was more tightly regulated.

Down the line purchasing

In the coming year, national treasury department planned to implement an upgrade of the management of state financial systems which would allow government to control its supply chain business more efficiently. A new office of Chief Procurement Officer had been given an elevated function in line with reforms in order to centralise procurement and to save costs, in the meanwhile reducing financial leakages.

It was part of the strategic plan to immediately create a technical support programme for infrastructure, he said, and a technical advisory centre was to be completed, which had, as its mandate, oversight of major capital projects on a top priority basis.

DG Fuzile also told the MPs that further priorities were the completion of financial agreements with BRICS countries.  An example of this was the recently much publicised  establishment of a bank and a pool of virtual reserves, not in competition with the IMF, but giving alternative propositions.

Pensions to be re-engineered

Also important, he said, was that public service pensions, both civil and military, administered by the government pension fund would have their business processes “re-engineered and modernised.”

Members of the standing committee expressed the view that the deficit on the current account was of concern to them, as was the balance of payments position. Chair Yunus Carrim requested that parliamentarians be updated immediately on the work of the Davis Tax Review Committee.

Other articles in this category or as background
http://parlyreportsa.co.za//cabinetpresidential/lock-parliament/

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Customs Duty Bill cuts out inland ports

Customs Duty Bill allows only for coastal ports…..

city deepIn dealing with the Customs Duty Bill, and its two tandem enabling Bills,  and talking to representatives of SARS and those advising them, there can be no doubt that SARS is working on the basis that current losses to the fiscus due to fraud and avoidance on matters regarding customs duty must be in the region of R4bn to R5bn, based on conservative estimating.  A weak link in the customs collection chain is cited as the line to City Deep and the terminal itself.

No official statement on an estimated figure however can be given, such issues are unproven and unquantifiable, they said, but if current SARS customs revenue is estimated this year at R50bn then a simple loss of 10% will produce such figures.

The massive Bill, drafted purely by SARS, clearly defines that the customs system in South Africa will change and customs clearance will have to be at a coastal port and that the present system of allowing uncleared goods moving to an inland port will cease.

Treasury going ahead

In responding to all the points made during public hearings, Kosi Louw, chief legal advisor, SARS, stated that it will proceed with its tabling on the basis that clear procedures for all stages of the supply chain are set out, monitoring of all stages are more easily monitored by SARS and that the increase in penalties are necessary.

A major concession allowed made by SARS is to include a “fallback” clause; in other words, if the new system imposed by SARS is found not to work or should fail in practice, then SARS would allow automatic reversal to the original situation; i.e. to allow inland ports. Kosi Louw said, however, that he was convinced that the new system would not only work but save the country a lot of money.

BUSA,JCCI opinions rejected

Most of the points raised by BUSA and JCCI were rejected by SARS in the light of the fact that the national interests that arose simply because of the vast amounts of revenue that were being lost to the fiscus. The new Bill brought about few changes in the trading positions of both importer and exporter, they said. 

SARS is insistent that it does not wish to close inland ports, stop container flow, congest the ports or discourage the use of rail or disrupt legitimate trade. However, now that so much digital flow of information is in the form of electronic transmissions rather than paperwork, it is time for SARS to undertake better risk assessments, Louw said, asking for more information that can be easily provided and to provide earlier information to traders and stakeholders so as to plan their supply chains, working on a basis of 1-2% interventions representing investigations.

Goods cannot continue to move purely on the basis of a manifest to an inland port, such manifest not containing tariff, value and origin to determine risk, they said. Thus with no manifest, the goods must in future be cleared by the importer at coastal locations and goods imported by them, not the supplier. Liability therefore becomes an importer’s issue as the ship docks.

Importers will have to pay from port

On the JCCI issues raised that traders will have to change their contracts of sale; sellers will be reluctant to sell goods under the new terms; importers will be badly affected and that delays and congestion will occur at ports, SARS has rejected all these points.

On the issue of CIF determinations, supply contracts and bills of lading, SARS confirmed that they had taken legal advice from Prof, Eiselen, a trade law expert; a maritime law expert, Adv Pammenter SC and Adv, Joubert SC, a customs law expert and no process of importation will be affected at law, they were advised.

A problem was ‘grouping” where say five parties shared a container to import goods where they could not fill a container alone. All five must submit customs clearance forms at coastal points and if one member of the grouping had a problem, then the whole container would be stopped, said Kosie Louw but this only represented 1% of all containers used, they noted.

WTO isues raised

On the issue that JCCI raised that the new Bill was in contravention of World Trade Organisation (WTO) treaties, SARS disagreed, They were party to the discussions with WTO and it is quite clear, they said, that any importation was subjected to national regulations imposed.

The moves in South Africa followed similar moves in Canada, the UK and Russia where specific information is now obtained. Where long distances by road and rail to inland bond points occur, enormous losses to the fiscus in those countries were occurring. The losses at City Deep, Johannesburg, are as high as 26%.

Penalties after three days

Three days are required for a clearance of goods that arrive by ship and penalties will arise after three days.

The implementation of such changes will be delayed by 12 months once the Bill is passed and “a clause will be inserted to allow for consideration of unintended consequences”. Freight forwarding associations and ship operators and their agents also supported the Bill, SARS said, as did Transnet.

In conclusion SARS said that they cannot allow the movement of goods to such a points as City Deep without proper information, such systems now being purely electronic moving from any manual paperwork.

In answer to questions, Louw said that customs control officers at the port no longer would make the decision whether or not to allow through a container. The containers themselves would be cleared or would not be cleared by the new electronic system that received the importer’s information, even interventions would be instructed by the system.

Under questioning, SARS repeated that the seller’s risk ceases at the point of loading the ship in a foreign port after CIF is paid. The only thing that will change is that there is no manifest to clear goods required but a new customs clearance procedure at point of landing by ship at the SA coast or at a border. The first stage of clearance will be in advance, or provisional, and a final release then issued.

SARS convinced that fiscus losses paramount

Finally, in answer to the question as to whether SARS felt that the Bill would damage in any way South Africa’s trade relations or trade figures, SARS denied that it would. It was “just a question of SARS getting better and smarter in the fight to raise more for the fiscus”. The whole system was predictable for all parties, Kosi Louw said, and all carriers have said it will make no difference to trade.

There was no change to the legal status of inland ports, SARS, said. Final rules and regulations can only be issued once the Bill under debate was passed but at this stage the Bill looks set for final approval. Refer previous article in this report.

There is no doubt that all three linked Custom Duty Bills will be passed before Parliament closes
Earlier articles on this subject:
http://parlyreportsa.co.za//energy/fueloilrenewables/illegal-diesel-coming-in-from-mozambique/
http://parlyreportsa.co.za//finance-economic/one-stop-border-post-with-mozambique-almost-there/

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Mozambique One Stop Border Post almost there

One Stop Border Post (OSBP) agreement ready

moz flagGovernment has told parliamentarians that indications are that the Mozambique government will finally sign the final portions, or annexes, to the One Stop Border Post (OSBP) agreement between South Africa and Mozambique in the very near future.

Mr Kosie Louw told the standing committee on finance that an original document of intention was signed in September 2007 by both parties but now consensus on all issues had been reached between the two countries, covering all the departments affected by cross-border issues.

Two countries, one clearance

There were three annexes, Louw said, and indications were that the Mozambique Minister of Finance was signing immediately.  The benefit of the OSBP was that goods would be inspected and cleared by the authorities of both countries with only one stop, which would speed up the movement of goods in the interests of facilitating trade.

Background

Louw, who is chief legal officer at SARS, introduced the briefing by explaining the difference between bonded and state warehouses. The main purpose of bonded warehouses, he said, which were privately managed and licensed subject to certain conditions, was to allow imported goods to be stored temporarily in order to defer the payment of customs duties.

Duties and taxes were suspended for an approved period – generally two years, Louw said, but these had to be paid before the goods entered into the market or were exported.  The licensee bore full responsibility for the duty and taxes payable on the goods, which could be removed only after all the customs requirements had been met.

State gets the illicit goods

State warehouses, on the other hand, Louw said, were managed by SARS for the safekeeping of uncleared, detained, seized or abandoned goods.  They provided a secure environment for the storage of goods in which the state had an interest.

Goods that had not been cleared within the specified timeframes, for instance, had to be removed to a state warehouse; otherwise the ports would become clogged up.  Counterfeit and dangerous or hazardous goods were moved to specialised warehouses.

Storage was normally allowed to remain for 60 days and if the goods were not collected, after fulfilling all the legal requirements, they could be sold with the proceeds applied to any duties, expenses or other charges due.  Any surplus would be paid to the verified owner, but if it was not claimed, it would be paid into the national revenue fund, Louw said.

Where the goods go

Goods that were appropriated to the state, or that were condemned and forfeited, could be sold, destroyed, transferred to another state organ, or made available for disaster relief, basic human necessities for the poor, or for donation to any country in need of aid in such circumstances, Louw concluded.

MPs noted that had taken over six years for the Mozambique OSBP to be finalised, so would it be possible, with the experience gained to negotiate with other countries to obtain one stop agreements and move at a faster rate?

The response was from SARS that South Africa was looking at the establishment of more such posts and had already had two discussions with Zimbabwe.  It was hoped it would take less time to reach an agreement, as many lessons had been learnt through the Mozambique experience.  Because an OSBP involved South Africa and a foreign country operating in a specific area, the main issue was ensuring that South African law applied in the foreign country.  This was a difficult area at international law, Louw said, and explained that this was why the Mozambique process had taken so long.

What is earned as revenue

When asked by members what the average revenue per year was from import taxes, a figure was supplied of between R15bn and R20bn being generated by customs alone, while import VAT was well over R100bn, and the overall income generated annual was more than R150bn.  A substantial amount of the VAT income was refunded, however, because of the input-output system.

When asked about losses, Ms Rae Cruickshank, group executive, customs operations, SARS, said losses obviously occurred through customs avoidance and evasion, so it was consequently very difficult to provide an overall figure on customs duty not being paid as evasion was evasion. Estimates varied as well according to the different border posts but such losses could possibly be anything from 10% to 30%, depending on whether it was a developed or developing country that was transacting.

Short of staff

Avoidance again was about approximations, she said, and this involved the smuggling of goods such as narcotics, or copper, which could only be quantified on the basis of what had been seized.   Although SARS had 3,000 customs officers and 72 dogs, the prevalence of smuggling was very high.  It was not unusual to apprehend up to 10 kg of cocaine a weekend.

Ms Cruickshank said it was impossible to process all containers coming into the country, more than 4 million a year, through scanners alone.  A scanner’s maximum capacity was to scan six containers an hour and this translated into 52,416 containers a year.   More scanners were being considered for Durban, Cape Town and Beit Bridge, where cigarette smuggling in the last named case was a serious concern.

Posted in Finance, economic, Public utilities, Trade & Industry, Transport0 Comments

Merchant Shipping Bills on oil pollution levies approved

International merchant shipping protocols met…..

oil_tankerAccording to a cabinet statement, a number of draft Merchant Shipping Bills from the minister of transport dealing with South Africa’s signature to international conventions on oil pollution have been approved, thus giving effect to obligations under the international maritime protocols regarding damage, loss through oil pollution at sea and the collection of levies.
The first draft Bill is the Merchant Shipping (Civil Liability Convention) Bill relating to the International Maritime Organisation Protocol of 1992, giving effect to law to in South Africa which will be in terms of the International Convention on Civil Liability for Oil Pollution Damage, a centralised body dealing with oil pollution at sea and compensation to a point, it appears.

Access to body of funds

Also approved by cabinet is the Merchant Shipping (International Oil Pollution Compensation Fund) Bill which has as its purpose the implementation of aligning to the Protocol to the International Convention on the Establishment of an International Fund for Compensation for Oil Pollution Damage, known as the Fund Convention.

This important legislation gives South Africa access to the Fund Convention, an internationally resourced compensation fund which contributes to damages arising from oil spills and which is basically financed and run by cargo vessel owners.

The Bill defines the work of this fund further by stating that such “is to pay compensation to victims of pollution damage where they have been unable to obtain compensation, or compensation in full, under the provisions of the Civil Liability Convention”, described in the first draft Bill.

Liabilities defined and oil defined

Both of these Bills, inter alia, deal with questions of liability, compensation, loss or damage caused by contamination of oil from tankers.

Also proposed and approved by cabinet are two more Bills, the Merchant Shipping (International Oil Pollution Compensation Fund) Contributions Bill and the Merchant Shipping (International Oil Pollution Compensation Fund) Administration Bill, the first named Bill allowing for the inclusion of South Africa in the International Maritime Organisation Protocol and for it to be implemented.

SARS get in

The last named Bill, the Merchant Shipping Administration Bill, enables SARS to collect levies and for them to pay over to the International Oil Pollution Compensation Fund such contributions in terms of the Contributions Bill, this therefore being “a money bill” in terms of the Constitution.

Posted in Energy, Enviro,Water, Facebook and Twitter, Finance, economic, Fuel,oil,renewables, LinkedIn, Public utilities, Trade & Industry, Transport0 Comments

SARS to be given right to search without warrant

The Tax Administration Act tabled as a Bill in Parliament a few months ago and subject to public hearings has been promulgated  and which will allow the SA Revenue Service (SARS) to search business premises without a warrant in terms of new regulations to be issued.

The law is expected to come into operation within a few months once President Zuma has given signature to the document.      New proposals in the act focus on a single registration process “to reduce red-tape” and the principle of self-assessment of taxes to avoid waiting for a SARS assessment.

SARS says it will also “pre-populate” its assessment forms with certain given and known information of the individual to ease filling in forms. A statement issued said that in future it will provide “clearer rules on access to its information systems so that tax liabilities can be determined more quickly and accurately.”

During presentations on the Bill in its passage through Parliament, SARS said the new Act was intended to simplify and provide greater coherence in South African tax administration law and that the new law “eliminated duplication, removed redundant requirements and aligned existing disparate requirements in different tax acts” going back over the years.

On the Act’s provisions to allow searching of premises SARS said in the same statement, “SARS is duty-bound to actively pursue tax evaders in order to maintain compliant taxpayers’ confidence in the integrity of the tax system.”

In line with this expectation, SARS said such an ability to search business premises without a warrant would be “in narrowly-defined situations, where the general requirement for a warrant would defeat the object of the search”.    SARS said it would then be able to act immediately when tax is at serious risk and time is of the essence”.

The new law also provides for an independent tax Ombud as promised in the state of nation address this year, “to provide taxpayers with a low-cost mechanism to address administrative issues that cannot be resolved through SARS’s normal channels.”

SARS adds that the new law will give clearer “requirements and timelines for issuing tax clearance certificates to provide greater certainty and responsiveness to business.”

Also there will be feedback systems to “engage more fully with taxpayers and to ensure the public understands the reasons for adjustments.”

 

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