By: Adrian Modikwe
The South African Revenue Service (Sars) plays a central role in promoting tax compliance and ensuring the best overall revenue collection results for the benefit of the fiscus and the public.
Optimal revenue collection rates and improved compliance attitudes require collaboration between Sars, Recognised Controlling Bodies (RCBs) as well as individual registered Tax Practitioners. These three entities form a triumvirate of the revenue collection system.
The inevitable puzzle
The questions in operationalising and addressing compliance are too many to ponder all at once and reveal unique and cascading systemic, legislative and practical quandaries within the regulatory space.
Why is it so challenging to maintain compliance? And why are Tax Practitioner Registration requirements considered a grudge purchase by many even at the risk of deregistration?
Are there changes that can be made to the system to better understand and enhance the general outlook and apparent lack of initiative and personal ownership towards compliance among Tax Practitioners?
Tax compliance is a global issue and has become increasingly problematic, particularly within a diverse South Africa.
Considering the diverse cultural and socio-economic standing of SA citizens, it is inevitable that our attitudes towards tax compliance are also diverse (noting lack of knowledge regarding taxation and low prevalence of personal tax compliance as a result of ignorance, negligence or with intention as seen through cases of evasion, overstatement in returns and underreporting).
Tax Practitioners, with the knowledge and skills, are crucial in bridging these gaps to ensure a healthy and functional revenue collection system.
Unfavourable attitudes and behaviours towards tax compliance are inevitable in a climate of an ailing economy evidenced by high tax, interest and exchange rates, a deteriorating tax base, swelling unemployment rates, corruption and inequality.
The triumvirate (Sars, RCBs, Tax Practitioners) must continually evolve their processes and systems to address tax compliance and risk issues to ensure continued public trust and legitimacy of the revenue collection instrument.
New developments and increased regulation examined below reveal issues which ultimately juxtapose the integrity of the profession against an uncertain future.
To evolve is to thrive. This article will briefly explore just a few key aspects of compliance in the tax profession in the South African context from a regulatory and compliance perspective.
The digital age
South Africa, like many other jurisdictions, is still emerging from the harsh socio-economic impact of the Covid-19 pandemic.
Given the demands of post-pandemic-era commerce, fundamental changes in tax administration are inevitable and conceivably permanent.
The now-entrenched remote-hybrid operational models adopted across diverse business sectors (including Sars) demand greater focus on technology-based solutions.
Adaptive business sustainability and stakeholder engagement strategies are central to ensure operational continuity and economic productivity.
The call for technological adaptability has been critical in unlocking and improving tax compliance but it has also presented its own myriad operational, service and engagement issues revealing itself as a double-edged sword for Tax Practitioners.
Nevertheless, the elephant in the room takes the form of the growing control and scrutiny of the tax profession at all levels in an unstable digital/virtual ecosystem. Generally, in terms of compliance, tax practitioners are required to:
Register with a recognised controlling body and Sars to enter practice legally and remain in practice.
Maintain personal and business tax compliance by:
- Ensuring that all returns are filed and the submission of Sars-required tax compliance documents is completed timeously.
- Making all reasonable efforts to settle any outstanding tax.
- Ensuring proper retention and maintenance of records for accurate reporting and filing.
- Upkeep of Tax Practitioner Registration requirements enforced by the RCBs through a broader scope of compliance monitoring and enforcement strategies including:
Sars Annual Tax Practitioner Compliance Auditing and Reporting.
Formal screening for criminal-free status.
Completion of continuing professional education (CPE) hours and other training.
In recent months, Tax Practitioners have been deregistered by Sars in droves across all RCBs due to non-compliance.
Compliance status is volatile and subject to unpredictable change based on default on any of the above-mentioned sources of non-compliance.
However, non-compliance is also founded in other aspects of practice such as reliance on unethical billing practices, the misuse of the Sars efiling system including the unlawful retention of tax types and the co-mixing of a Tax Practitioner’s personal contact details in client-taxpayer efiling profiles.
In the latter instance, Tax Practitioners have seen their efiling access revoked as this behaviour is considered to create a risk for impersonation and other instances of dishonesty and lack of transparency.
This risk mitigation measure is incited by the burgeoning complications of fraud and hacking of efiling profiles.
Tax practice is tough work
Whether you are in the tax compliance or advisory space, or any other field involving tax and grappling with complicated tax laws, instruments and schemes, balancing the professional and moral duty to uphold the integrity and trust in the revenue collection system with shifting commercial and compliance demands, while battling Sars system/operational issues, is challenging.
Increased scrutiny of Tax Practitioners without proper empowerment and support in the balance from Sars may create varied business, morale, and ethical dilemmas. These affect compliance behaviour and managing conflicts of interest among even the most judicious Tax Practitioners against a backdrop of punitive and often rigid regulatory system. Competing interests are always at play.
Competing interests: business vs the public interest
Proceeding with examples from cases investigated by the SAIT Disciplinary Committee and keeping tax morale and ethics in mind; the taxpayer (through their appointed Tax Practitioner) may prefer aggressive tax filings where they believe they will not be detected and sense that the risk for audit and prosecution is negligible.
How far should the taxpayer’s choices on tax positions and risk impact on the Tax Practitioner’s compliance? Or, given the many complexities and ambiguities within the legislation which can lead to accidental non-compliance, the taxpayer may show reluctance to voluntarily disclose errors made on returns without some degree of the corresponding leniency from Sars.
Likewise, it is foreseeable that Tax Practitioners would show a degree of resistance to functioning as veiled Sars auditors which would unavoidably lead to loss of business for failure to protect their clients’ expressed or best interests where tax liability could be minimised, no matter the risk.
Of course, Tax Practitioners are expected to conduct themselves competently and objectively within the law as key actors in the revenue collection system.
In spite of the unsurprising predisposition towards commercialism to the detriment of the public interest (i.e. Sars and the fiscus), Tax Practitioners must take care not to pass off facts or tax positions they know or believe to be incorrect or misleading; not to assert tax positions in a tax filing which they consider to have no sustainable basis or are highly artificial or highly contrived; and seek to exploit shortcomings and ambiguities within the relevant tax legislation and operational model. Such conduct exposes the Tax Practitioner to potential criminal and disciplinary prosecution which includes deregistration.
Potential adverse impact of punitive regulation of Tax Practitioners
Creating the most ideal conditions required to promote voluntary and consistent tax compliance while improving tax morality and attitudes can be difficult.
Particularly within an environment which is generally perceived to be offering inadequate technical and operational support punctuated by lack of incentive/reward in favour of heavier monitoring and punishment for non-compliance (inadvertent or intentional).
This may produce inequitable results including, inter alia:
- Leaving honest taxpayers in a system that dismisses safe-harbour provisions vulnerable to audit penalties without recourse.
- Haemorrhage of judicious, diligent, experienced and bona fide Tax Practitioners to other jurisdictions with more favourable regulatory standards.
- Loss of skilled Tax Practitioners to the unregulated ‘ghost practitioner’ market through large-scale deregistrations for minor infractions.
- Eventual failure to properly address and eliminate unregistered Tax Practitioners while discarding registered Tax Practitioners for inadvertent non-compliance.
The unique roles of the tripartite (Sars, Tax Practitioners and RCBs) in promoting compliance are key to ensuring Tax Practitioner standards of professionalism and ethical conduct.
However, it is possible that the particular focus on enforcement of primarily punitive provisions of tax law may cause more challenges than may be immediately foreseeable.
That said, Tax Practitioners resident within any RCB and registered through Sars are reasonably expected to maintain their compliance with all applicable standards.
Concessions to systematic challenges may be made, however the Tax Profession is not exempt from the same standards of compliance and professionalism to which other professions are subject.
To file or not to file
Ensuring that client-taxpayers provide the necessary information during filing season is a constant challenge.
The discovery phase of systematisation, review and updating of client-taxpayer information is a function that remains largely manual; it is therefore very costly, time consuming and may be prone to errors where Tax Practitioners fail to communicate clearly and make the necessary enquiries to ensure they meet all compliance procedures and requirements.
Several Tax Practitioners are investigated and prosecuted annually for unprofessional conduct and/or negligence for much of the professional undertakings and failures in this phase of client engagement.
Failure to apply proper due diligence and due care are grounds for non-compliance with professional codes and standards.
Tax Practitioners must apply professional judgement and competence to communicate and align client expectations and responsibilities to adverse consequences (i.e. late, incomplete, incorrect or fraudulent filings) which may lead to prosecution.
As the go-between for taxpayers and Sars, the work of a Tax Practitioner is complex and is rarely without complications.
Complications are aggravated by continued disruptions to Sars operations and platforms which can create higher risks of human and technical errors as well as delays in filing returns.
Some of the challenges Tax Practitioners face on an annual basis in client engagement include, inter alia:
- Sporadic client-taxpayer responsiveness;
- Miscommunication of expectations and mandates;
- Delayed or withheld payment for services; and
- Delivery of incorrect or incomplete information.
In a society that is not particularly tax-positive or well informed on the intricacies of tax practice, the client-taxpayer still indeed plays a central role in the proper administration of its own tax affairs.
The client also ultimately determines and chooses their risk profile and appetite. Unfortunately, the Tax Practitioners bear the brunt of the above challenges as they are responsible for encouraging healthy compliance behaviour and responsiveness within strict timeframes.
In practice, the disconnect in communication and co-operation often creates a risk- and accountability-shifting culture; on one hand, dissatisfied client-taxpayers report unprofessional or negligent conduct against Tax Practitioners.
On the other hand, Tax Practitioners must ensure compliance by consistently meeting the standard of professional duty of care by which the client’s best interests are paramount (within legally acceptable bounds of law in terms of permissible tax positions).
When all is said and done
A Tax Practitioner should always act in a way that will not bring themselves, the profession or their professional body into disrepute.
This means that all the main requirements for compliance with statutory, SAIT and Sars standards must be consistently observed from the point of admission and induction.
The trade-off for belonging to a prestigious profession is safeguarding public confidence in that profession, leading by example and meeting the fit and proper person test.
A Tax Practitioner’s personal and business tax affairs must be up to date. Neglect of a members’ own affairs raises legitimate doubts as to the standard of professional work and has the potential to bring the Tax Practitioner into disrepute.
A Tax Practitioner entangled in a dispute with Sars regarding their personal or business tax affairs should engage another Tax Practitioner to represent them.
Tax Practitioners should consider whether any tax arrangements with which they might be associated on their own behalf or on behalf of a client might bring the member and the profession into disrepute and distance themselves from same accordingly.
There are several Tax Practitioner Registration/Retention Criteria imposed by Sars and enforced by RCBs. These standards seek to give effect to specific provisions of Chapter 18 and Section 240 of the Tax Administration Act 28 of 2011 (as amended) and include maintenance of CPE, Criminal-free statues, tax compliance and adherence to RCB codes of ethics and conduct.
Concessionary comment on practical, systemic, technical and professional challenges in the field are acknowledged and all of these standards have been briefly treated in this article.
Remaining compliant with these basic standards goes a long way to ensure that a Tax Practitioner avoids penalties, disciplinary action and is not exposed to prosecution and/or deregistration.
The ball remains in your court to maintain your compliance with all statutory requirements.
* Modikwe is the legal and compliance officer at the South African Institute of Taxation.
** This article was originally published on the TaxTalk magazine by the South African Institute of Taxation
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