Deloitte - EMEA Regional Indirect Tax Interview (i)

Interview with Severus Smuts, Africa Tax & Legal Director and Indirect Tax Leader, Deloitte Africa

What is the most significant change to your region/jurisdiction’s tax legislation or regulations in the past 12 months?

In South Africa, significant changes, notably in the indirect tax area, in the past 12 months are:

Value-Added Tax (VAT):

• Publishing draft amendments that incorporate previous rulings (issued in terms of Section 72 of the VAT Act) that dealt with anomalies and incongruities into legislation.

• The temporary letting immovable property for residential purposes.

• (There had also been case law that dealt with direct attribution and apportionment in a partially exempt environment).

• Wide interpretation of the application of electronic services by the revenue authority.

Global Trade Advisory (GTA):

• Publishing of rules dealing with the registration of suppliers of fuel within the Diesel Refund Scheme.

• Publishing of the Accreditation Rules, which in essence implemented the Authorised Economic Operator (AEO) (July 2021).

• Publishing of the draft legislation introducing the Advance Rulings Chapter in the Customs and Excise Act.

What has been the most significant impact of that change?

VAT:

• Many questions around the ambit of the new and proposed legislation.

• Property developers renting out newly built units having to pay VAT on those units before they are sold.

From a GTA perspective:

We have had a few engagements where clients have requested us to assist them with the application for accreditation through the AEO process. We continue to discuss the benefits of accreditation and clients seem very keen to participate.

How do you anticipate that change impacting your work and the market moving forwards?

Contributing to industry debates, with National Treasury of South Africa as well as the South African Revenue Service (SARS), to comment on whether the proposed legislation achieves the tax policy.

Various training initiatives directed at educating taxpayers on the new and proposed amendments.

In the GTA arena:

• Assisting fuel suppliers with their registration in terms of the Customs and Excise Act.

• The publication of advance rulings also presents an opportunity for Deloitte to advise clients and assist them with preparing submissions to SARS. As soon as the rules are published, we foresee clients taking up the opportunity of having clarity and certainty before they import goods into South Africa.

How has this changed the way you offer tax advice?

• Raising awareness of their compliance obligations or are making use of the exemptions that may apply to them.

• Raising awareness of potential tax changes and Revenue Authority requirements with the market and our global Deloitte network and at various strategic engagements such as client seminars, webinars, and industry conferences or summits.

What potential other legislative/regulatory changes are on the horizon that you think will have a big impact on your region/jurisdiction?

With the abolition of the supplementary declaration that accompanied the income tax return, we expect revenue authorities in Africa to implement other tools that will enable them to assess the tax declarations of taxpayers.

Revenue authorities are likely to introduce the so-called standard audit file for tax (SAF-T) requirement that taxpayers would need to submit annually or along with their annual income return.

Real-time reporting may be implemented, meaning that the revenue authority will require access to the financial reporting systems of taxpayers.

New customs legislation is still to be implemented. More automation is provided for in the area of customs and excise under the “yet-to-be” implemented legislation.

Two new chapters are to be covered in this new customs legislation that relate to a process of Voluntary Disclosure (which officially happens in VAT) and transhipment procedures will be clarified in a chapter on transhipment which has been inserted.

What are the potential outcomes that might occur if those changes are implemented?

With real-time reporting, taxpayers would need to confirm that their tax reporting systems produce accurate tax information.

• Data visibility will be key to access correct data.

• Accurate first time capturing of tax data will be important.

• More trade facilitative processes are provided for in the Acts (i.e., warehousing benefits and interest accruing to clients and not only the revenue authority, and expedited clearances).

Do you think that change will have a positive effect on both your practice and the wider regional/jurisdictional market?

• Yes, taxpayers will need assistance to assess whether they will be able to comply with these new requirements. This will also cause better compliance and visibility of data that will assist taxpayers to minimise tax ineffeciencies and identify opportunities.

• Enterprise resource planning (ERP) systems may need to be upgraded and reconfigured with the latest tax modules that will assist with better compliance.

Are there any regulatory/legislative changes you believe should be implemented in your region/jurisdiction?

Yes, providing more legislative guidance in respect of certain provisions, such as electronic services, cross border services, and VAT grouping provisions. The policy statements by National Treasury and publications issued by the South African Revenue Service (SARS) seem to contradict the application of the actual legislation by SARS. Given the formal guidance sought from SARS in the form of rulings and recent case law, the legislation relating to cross-border services should be reviewed and amended where appropriate.

How do you believe those changes would help improve the tax landscape in your market?

It would avoid tax cascading (adding VAT to exported services), provide tax certainty (aligning policy statements and SARS publications to the application of the regulations), and assist in meeting the prescribed Organisation for Economic Co-operation and Development’s (OECD) principles.

How are issues surrounding the taxation of the digital economy affecting your work?

• VAT on electronic services still presents interpretational challenges.

• The requirements for issuing of electronic tax invoices should be covered in the VAT Act on the basis that it has a direct impact on the net liability for tax. These requirements are currently dealt with the Electronic Communications and Transactions Act, 2002.

• Parts of the VAT legislation need to be amended to deal with the digital economy (e.g., vouchers, tokens, and stamps).

• Customs legislation that enables modernization to improve compliance as well as trade facilitation.

How would you describe the tax authorities’ approach in your region/jurisdiction?

• It is still predominantly focussed on control and operates from the place of enforcement. In recent years, however, we have seen a shift towards more trade facilitation with the introduction of Preferred Trader (and now AEO) and more post-clearance audits, which are preferred as they tend to address compliance needs with reduced business disruption.

• Very wide interpretation of what constitutes an electronic service, which creates a VAT registration liability for numerous entities that are not typically seen as providers of these services.

• The appointment of a significant number of data analysts by SARS would suggest that taxpayer’s data will play a much larger role in the future.

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