2018: A year in tax

As 2018 has come to an end, we reflect on some of the significant highlights (and lowlights) of the 2018 tax year.

Davis Tax Committee concludes its work

The Davis Tax Committee (DTC) was appointed by the Minister of Finance in 2013, to inquire into the role of the tax system in the promotion of inclusive economic growth, employment creation, development and fiscal sustainability. The committee published several in-depth reports, including VAT, corporate income tax, capital gains and wealth taxes. Many of their recommendations will undoubtedly be considered in the years to come. On 27 March 2018, after five years, the DTC held its final meeting. All reports are available at http://www.taxcom.org.za/library.html.

Significant judgements

Two important, precedent-setting judgements were delivered by our courts during 2018:

  • Sasol Oil: In November, the Supreme Court of Appeal (SCA) found in Sasol’s favour when SARS challenged several transactions that they concluded, on the grounds that the transactions were simulated. The court re-affirmed the tests to be applied to determine if transactions are simulated and entering the realm of tax evasion. This was an R1.3 billion win for the taxpayer.
  • Volkswagen: Regarding the valuation of trading stock, the SCA indicated that valuing stock at net realisable value was contrary to two fundamental principles. Firstly, taxable income is determined from year to year by looking at events that have taken place during that year so that tax is backward-looking, while the net realisable value is forward-looking. Secondly, the effect of using net realisable value is that expenses that will only be incurred in a future year in the production of taxable income in that future year would become deductible in an earlier tax year. On this basis, the court found in SARS’s favour.

Changes to the Act

The yearly legislative cycle ended when the Taxation Laws Amendment Bill was published on 24 October 2018, ending a process that started with the Budget Speech in February. 94 organisations and individuals provided valuable inputs and comments on the draft bill, on issues ranging from venture capital companies to debt reduction. As always, the input from the public and organisations significantly shaped the amendments to the law.

Nugent Commission

In May, a commission into tax administration and governance at SARS was appointed under the leadership of Retired Justice Robert Nugent. Several concerning revelations have been made, which has led to the dismissal of Tom Moyane as Commissioner. A final report from the Commission is due shortly – which will hopefully set the scene for positive changes at SARS.

VAT increase and review

On the back of an increase in the VAT rate to 15% on 1 April 2018, a review was undertaken by a panel of experts on the zero-rating of several goods. It was finally decided that white bread flour, cake flour and sanitary pads will be zero-rated from 1 April 2019, at a revenue loss of R1.2 billion to the fiscus. 

Tribute

Sadly, two respected personalities in the tax fraternity passed away in 2018. Professors Matthew Lester and Lynette Olivier will be remembered for their valuable contributions to the field of tax over many years, both in academics and in commerce. Their works will continue to serve as authoritative sources for many years to come.

Undoubtedly, 2019 will bring as many, if not more exciting changes to the world of tax. It will be particularly interesting to see the political impact on our tax system, given that we are heading into an election year.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

Turnover tax deregistration

The Sixth Schedule of the Income Tax Act[1] details the workings of the turnover tax system applicable to micro-businesses. Turnover tax is an optional system (with preferential tax rates) and is essentially a simplified tax system that is available for micro-businesses (businesses with a qualifying turnover of R1 million or less). The Sixth Schedule deals with persons that qualify as micro-businesses (which does include natural persons), the permissible shares and interests that the micro-businesses may own, what constitutes taxable turnover and exclusions therefrom. Although the system has been widely used, there is an increasing number of taxpayers for who the system is no longer optimal, and who wish to deregister and be subject to the “normal tax system”.

In terms of paragraph 9 of the Sixth Schedule, there are two bases on which a person can be deregistered for turnover tax:

  1. Voluntary deregistration

Voluntary deregistration occurs when the owner of a registered micro-business prefers to be taxed under the “normal tax system” and elects to deregister from the turnover tax system. A voluntary deregistration is permissible if the taxpayer submits a written notification to the Commissioner on or before the end of a year of assessment (28 or 29 February). Deregistration will be effective from the beginning of the following year of assessment. For example, a registered micro-business electing to be deregistered from the turnover tax system by submitting a notification to the Commissioner on 21 January 2019 will be deregistered with effect from 1 March 2019 (i.e. the 2020 tax year). There is currently no prescribed form that the notification should take on, and it is advised that taxpayers should visit their nearest SARS branch and submit a formal request to be deregistered (or approach your tax practitioner to assist).

  1. Compulsory deregistration

Compulsory deregistration will take place if a registered micro-business no longer qualifies to be registered as such. Two factors may necessitate a compulsory deregistration, namely –

  1. the qualifying turnover derived by the micro-business from carrying on business activities during a year of assessment exceeds or is likely to exceed the R1 million threshold and the business cannot demonstrate that this will be a nominal and temporary event; or
  2. the person is disqualified based on the source of its turnover (for example professional services) or the investments that it holds.

A registered micro-business which is subject to compulsory deregistration must notify SARS within 21 days from the date on which it no longer qualifies as a micro-business. A failure to notify SARS may result in penalties being levied against the taxpayer.

Taxpayers must also remember that deregistration for turnover tax may have other administrative requirements that should be attended to, for example re-considering its VAT position, income tax position, provisional taxes and other compliance.

[1] No. 58 of 1962

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)