NEWS & OPINION
31 December 2020
DR ALBERTUS MARAIS Director, AJM Tax
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ection 12J was introduced to the South African Income Tax Act on 1 July 2009, creating an incentive for taxpayers to invest in qualifying venture capital companies (VCCs) in return for an income tax deduction equal to the amount invested. In other words, a full income tax deduction was provided for taxpayers investing in these entities. In its most beneficial form, taxpayers earning income that is taxed at the top marginal income tax rate of 45% are able to invest an amount and receive a refund from SARS of up to 45% of the invested amount. This presents a significant discount on the investment, which makes it all the more lucrative. The policy behind the incentive is to encourage taxpayers to invest in active businesses in a bid to stimulate economic growth and job creation. Qualifying VCCs therefore cannot invest in any asset class, but are required to invest only in companies that conduct permissible trades. Passive investments by a VCC are not allowed; only active investments that stimulate job creation, such as in the tourism, retail or manufacturing sectors.
The sunset of section 12J is fast approaching, or is it? Since its introduction, though, is in the process of considering the the incentive was – like many others efficacy of the section 12J incentive, as contained in the Income Tax Act – it has called for detailed submissions never intended to be a permanent one on the financial information of and a sunset clause was always part of existing VCC structures. This will the relevant legislation to determine enable it to consider the impact of the that these tax deductions would incentive and whether it is worthwhile only be available for investments for it to be extended. made by 30 June 2021. This sunset Considering how the annual fiscal clause is therefore legislative cycle to come into effect works, it is interesting soon to limit IT IS INTERESTING that Government further deductions THAT GOVERNMENT has waited this long in terms of this before considering HAS WAITED THIS an extension of the highly lucrative tax incentive, unless sunset clause. The LONG BEFORE Government were to fiscal legislative cycle CONSIDERING AN introduce legislation kicks off annually EXTENSION OF THE with the national for the 30 June 2021 deadline to be budget speech, SUNSET CLAUSE extended. when Treasury While various industries, notably also publishes a number of proposed the tourism industry, are in dire amendments to the South African need of incentives to stimulate tax laws, which it intends to publish economic growth that will no doubt later the year. These proposals then yield increased tax revenues in the culminate in the draft Tax Amendment long term, the unfortunate reality of Bills published around June/July of the South African fiscal position is each year. After public consultation that incentives encouraging longand debate among Treasury, SARS term economic growth may be and tax practitioners, these draft Bills unaffordable in the short term. are then published in refined and final It is apparent that National Treasury form (typically around October of
every year), and adopted by Parliament and signed into law in December/ January of the following year. This is relevant since, if Government intends to extend the lifeline of section 12J beyond the current 30 June 2021 sunset clause, it should have done so as part of the 2020 fiscal legislative cycle, with the amendment acts becoming law in December 2020/January 2021. Failing to have done so means that an extension will only be able to be passed into law after the sunset clause has already kicked in (in other words, expected during December 2021/ January 2022). If the sunset clause is therefore to be extended beyond 30 June 2021, it will require Government to announce in the budget speech next year that it intends to introduce retrospective legislation to ensure that the sunset clause is retrospectively extended. This is not ideal, since it creates uncertainty between 30 June 2021 and when the tax amendment legislation is finally adopted. Whether Government actually pushes through with finalisation of the necessary legislation to extend the sunset clause will remain up in the air during this time.
Clarity for taxpayers on tax dispute resolution
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Nico Theron, tax expert and author
8 WWW.MONEYMARKETING.CO.ZA
axpayers and businesses are under increased pressure as a result of the economic downturn and impact of COVID-19. On the flip side, the South African Revenue Service (SARS) is also under pressure to meet targets. A possible outcome of this doublesided scenario is, according to experts, the potential for an increased number of tax disputes in the near future, with SARS attempting to secure revenue and taxpayers wanting to reduce their tax burden. “Tax disputes have become increasingly complex,” says Nico Theron, tax expert and author of the newly released Practical Guide to Handling Tax Disputes, published by LexisNexis South Africa. “There is no single detailed analysis of the rules and, as a result, there seems to often be various
interpretations as to what the rules actually are, which makes for increasingly complex outcomes.” In some cases, this lack of clarity results in SARS misinterpreting the rules and procedures and this, according to Theron, is where taxpayers need a deeper understanding of what remedies are available to them. “In many cases, taxpayers do not understand the various remedies they have when they are not happy with an assessment or decision by SARS, and they give up the claim without launching a challenge, abandon their challenge too soon, or challenge the assessment or decision incorrectly or inadequately.” The Practical Guide to Handling Tax Disputes spells out taxpayer options, providing fair opportunity for taxpayers
to fight their case, and assisting in preventing the collection of taxes and penalties that are not due. This practical and technical guide offers various grounds for taxpayers to defend themselves against SARS, the remedies available, and tactics for dealing with the pay-now-argue-later rule that SARS typically enforces. Including relevant case law and analyses of rules covering tax dispute resolution, options available to taxpayers if SARS fails to abide by the rules, templates and dispute resolution forms, the title fills a key gap in existing literature. Taxpayers and tax professionals from lawyers, accountants, auditors and other tax practitioners will find this standalone text comprehensive in highlighting issues arising in practice, and strategies to deal with these from the taxpayer’s perspective.
