By Tarryn Atkinson CA(SA)
SARS is both the administrator and implementor of tax legislation in what can be a lengthy process.
While many people anticipate and focus on the budget delivered in February each year by the incumbent Minister of Finance, the legislative process itself begins much earlier. National Treasury is the custodian of tax legislation and therefore takes the reins in preparing and drafting the new legislation − arguably with the exception of the Tax Administration Act, where they currently play an oversight role that is worth a discussion on its own. The role of the South African Revenue Service (SARS) in the legislative process is a complex one, but when it comes to pure tax legislation, their role is clear: SARS is the administrator and implementor of legislation.
Once the cycle has run its course, three Acts are promulgated: the Rates and Monetary Amounts and Amendment of Revenue Laws Act, the Taxation Laws Amendment Act, and the Tax Administration Laws Amendment Act. The route to finalising these pieces of legislation doesn’t start with the delivery of the budget speech, however. The first indications of any possible tax changes can be found in the Medium-Term Budget Policy Statement delivered by the Minister of Finance in October each year. In this statement, the Minister may give early indications of any policy changes or changes in tax rates that may be anticipated for the following year.
The legislative process is structured in such a way as to elicit public participation and it is with that in mind that the process actually commences. In November each year, National Treasury invites submissions for the budget speech and new legislation to be considered as well as any technical corrections that may be required in existing legislation to make it more effective. This is commonly referred to as the ‘Annexure C’ process (this term will be explained below). The technical corrections can range from an incorrect comma to incorrect cross-referencing to more technical corrections such as sections that create unintended consequences once applied in practice. While this is open to the public, the Annexure C process is largely utilised by industry and professional bodies, the tax teams of large corporates, and the various audit and law firms in order to provide submissions on policy changes or industry-specific legislation or, as in most cases, suggestions for the better functioning of the tax system in South Africa.
Once submissions have been made to National Treasury, workshops are set up in December where some of the policy proposals or the more complex technical corrections are debated with the various stakeholders and the relevant parties that submitted the suggestions, as well as SARS and National Treasury. The workshops are held over two days and divided into different tax types and addressed by the various Treasury officials responsible for those tax types. Once the workshops are completed, National Treasury commences putting together the budget and conducting research into the proposals discussed in order to prepare for the budget speech in February.
The budget speech consists of far more than simply a speech delivered by the Minister of Finance. As the Minister stands up to deliver the budget speech, the Budget Review is released on the National Treasury website. This consists of a number of documents that provide in-depth detail on the various points of discussion contained in the speech itself. It is these documents that economists and tax professionals will review while the speech continues.
Tax professionals will busy themselves with two documents in particular – Chapter 4 of the Budget titled ‘Revenue trends and tax policy’ and Annexure C titled ‘Additional tax policy and administrative adjustments’. Chapter 4 contains the tax changes that will be taking place, including rate changes, rebate changes, medical aid credit increases, sin tax’ increases, and the revenue details expected in the forthcoming budget. Annexure C, as referenced above, contains tax policy proposals that may be included in the upcoming draft legislation. If something is not mentioned in either of these two documents, it is unlikely that it will be seen in the draft legislation that National Treasury would already be preparing.
While there is no formal commentary process post the budget speech and release of the budget documentation, if there are key areas covered in the documents that require comment, many industry and professional bodies would do submissions to National Treasury. An example of this was the recent situation where the Minister announced that section 10(1)(o)(ii) would be re-evaluated. This announcement sparked many submissions to National Treasury outside the normal commentary process.
While the Budget itself, and in particular Annexure C, contains various high-level proposals, the true opportunity to review and comment on the policy proposals is in effect when the draft legislation is released in late July, early August. At this stage, tax professionals are able to understand how the high-level policy proposal is being translated into law and whether it achieves its purpose or whether unintended consequences may arise. There is an extensive commentary process that begins once the draft legislation and the explanatory memoranda are released for comment. With each of the draft bills, an explanatory document is produced setting out a problem statement, the proposed amendment and the reason for the amendment, this is to enable the commentators to understand the rationale behind the amendments. Once again submissions will be made on the draft legislation and workshops will be held to discuss and debate the amendments and new provisions being proposed.
Following the workshops, National Treasury will prepare the final version of the legislation, which is usually released in October before it enters the parliamentary process. As the Rates and Monetary Amounts Bill and the Taxation Laws Amendment Bill are money bills in terms of the Constitution, the process of approval is different from that of the Tax Administration Laws Amendment Bill. As a result, the promulgation of the final bills as Acts can take place between November and December and is largely dependent on the President signing the Acts into law. As set out above, the legislative process for tax can be lengthy and even though legislation can be promulgated it may only come into effect in future tax years depending on the effective date in the final legislation.
This article was originally published in the April 2019 issue of ASA.