Even before its establishment, the suspension of Tom Moyane as commissioner was widely viewed as the first step to achieving this. The terms of reference of this commission have now been gazetted and importantly include the impact of the conduct of Sars management on the public image. There is little doubt that the president has demonstrated his commitment to restoring the reciprocal relationship of trust between the government, the tax administration and the country’s taxpayers, a which has been badly eroded, leading to an increasingly adversarial relationship between all three parties.
It is instructive to note that the president, in his suspension letter to Moyane, confirmed that “tax morality is dependent on an implicit contract between taxpayers and government that the state spending provides value for money and is free from corruption”. His assertion resonates with a report of the International Bar Association’s Human Rights Institute Task Force on “Tax Abuses, Poverty and Human Rights”.
The task force concluded that tax abuses negatively impact the enjoyment of human rights, as they deprive governments of the resources required to provide the programmes that give effect to economic, social and cultural rights and to create and strengthen the institutions that uphold civil and political rights. The role of Sars is to build the confidence of all taxpayers in the system, which, in turn, would encourage taxpayers to do the right thing by fulfilling their responsibilities under the law.
A valid and binding taxpayers’ charter and/or bill of rights to which the tax administration is committed would be a valuable instrument in defining what taxpayers are entitled to expect from Sars.
The existing Sars Service Charter dates back to 2005 and has not been updated since. The tax ombudsman has been encouraging the introduction of a new charter for about two years, but with no discernable success.
The Davis Tax Committee, in its report on tax administration, recommended that a charter in the form of a bill of taxpayers’ rights should be enacted. The role of the tax ombudsman could encompass holding Sars to account in complying with its obligations under such charter/bill. In this regard, the Taxpayers’ Charter adopted by the Australian Tax Office (ATO) is instructive, including therein commitments to being open, transparent and accountable in its dealings with taxpayers, being professional, responsive and fair, taking into account taxpayer’s circumstances and previous compliance behaviour and endeavouring to make it as easy as possible for taxpayers to comply with their obligations.
These commitments are underpinned by the recognition of a taxpayer’s right and expectation to be treated as being honest (unless acting otherwise) and fairly and equitably in accordance with the law - a standard which Sars has clearly failed to achieve.. As far as large corporate taxpayers are concerned, the ATO has introduced the concept of “justified trust”, which will be earned by a taxpayer where it can display objective evidence that would lead a reasonable person to conclude that a particular taxpayer indeed paid the right amount of tax.
When engaging with such a taxpayer, an important departure point for the ATO is to understand a taxpayer’s tax governance framework. Last year, the ATO expanded its “Tax Risk Management and Governance Review Guide”, which sets out both board- and management-level responsibilities.
In addition, the ability afforded by the ATO to large corporate taxpayers to report voluntarily under a “Tax Transparency Code”, to conclude an “Annual Compliance Agreement” with the ATO and to strive for a low-risk rating in terms of the “risk differentiation framework” of the ATO are all factors which encourage the maintenance of open and constructive relationships. At this point in time Sars has not introduced any such initiatives and does not appear to be capable of tailoring its approach based on an understanding of the unique business and risk profile of a taxpayer.
In this era of “legislated transparency”, large corporate taxpayers, in turn, must play their part in demonstrating a commitment to building a transparent, co-operative and constructive working relationship with Sars by adopting a responsible approach to their tax affairs based on and evidenced by the adoption and communication of, among others, the following principles:
* The recognition of the interests of all stakeholders in tax transparency.
* An understanding of how “aggressive” tax conduct can impact a taxpayer's brand and reputation.
* The identification, assessment and management of tax risks.
* The existence of an approach to tax incorporating a disclosed tax strategy and tax management policy, and allocating accountability therefor.
* Global compliance based on full disclosure of all group entities globally, the application of legislation and the location of value creation.
* The adoption of arm's length business arrangements which have a commercial purpose other than the avoidance or minimisation of tax.
* Engagement with tax policy setters and administrators in a transparent and constructive manner.
* The provision of regular and relevant information to all stakeholders, including information on a company's overall effective tax rate and on taxes paid where business is conducted (currently there is no legal obligation to publish the latter in the public domain).
In the South African context, corporate governance proposals expressly recognise the role and responsibilities of the board and the audit committee in tax governance and oversight, including the formulation of a tax strategy and policy that are aligned with responsible corporate citizenship and wider stakeholder considerations, including reputational risk.
Large corporate taxpayers in South Africa should now evidence their bona fides in contributing to a new spirit of fiscal partnership by endorsing and operating within the principles outlined above and communicating this approach to all stakeholders.
Reciprocally, Sars should establish its own internal framework, processes and procedures to foster co-operative and collaborative relationships with its taxpayer “clients”, based not only on a commercial and operational awareness of their industries and supply chains, but, more importantly, the existence and effectiveness of the taxpayer’s governance and risk management framework.
* Ray Eskinazi is senior manager at BDO tax services
** The views expressed here are not necessarily those of Independent Newspapers.