Get in the game – Taxpayer involvement in the drafting of reasonable laws

752
0

[blockquote author=”” ]Regulation and its reforms affect all the participants in civil society, and therefore, in order to better assess the impacts and minimise costs, all the parties involved should be able to participate somehow in the regulatory processes. That is where public consultation has become one of the best tools to improve quality in regulation.[/blockquote]

These are words from the (Organisation for Economic Co-operation and Development) OECD’s Background Document on Public Consultation, an appeal by the international organisation highlighting the benefits of public involvement in matters pertaining to government regulation.

The document shows that public consultation increases the likelihood of compliance to the law, because of the sense of ownership felt by those who have given their input. It also helps to identify practical problems as well as the unintended consequences of government regulations that are currently in the pipeline. The best intentioned law can have devastating results that legislators never could have anticipated. By bringing into the discussion the expertise, perspectives, and ideas of those who will be directly affected by the proposed laws, government simultaneously benefit from the input of other stakeholders and mitigate the risk of non-compliance from a society that feels left out in the cold.

The results of poor public consultation

The lack of adequate engagement with members of society can have disastrous consequences, as shown by the situation involving e-tolling in Gauteng. According to the Opposition To Urban Tolling Alliance (OUTA):

[blockquote author=”” ]While (the South African National Roads Agency)SANRAL will have us believe they did all they could to be consultative in this decision, the simple truth is they failed and fell far short of what would be expected in a matter of this magnitude… Our legal challenge has shown that SANRAL did the bare minimum to expose and engage with society on their elaborate plan to toll the Gauteng freeway upgrade. From one advert placed in six newspapers in October 2007 to over 3,5 million licensed vehicles / motorists in Gauteng, SANRAL received only 28 responses to their request for submissions…[/blockquote]

It comes as no surprise then that according to reports as on 26 July 2014, unregistered motorists owe over R1 billion in unpaid e-toll fees.  Poor public consultation has severely demotivated motorists from paying the tolls. Perhaps the most ironic thing about the whole matter is that South Africans are actually not opposed to the idea of paying for better roads per se.

This is suggested by the fact that the public has given numerous recommendations of various funding mechanisms that could have been used by government instead of the e-toll system. For instance, some have advocated for the increasing of the fuel levy as an alternative. And even if increasing the fuel levy would have proven to be a bad idea, proper consultation could have at least made motorists more sympathetic to SANRAL’s cause and thus less resistant to e-tolls. The whole nation loses out when laws are enacted without properly engaging with all stakeholders.

Public consultation and tax

National Treasury, unlike SANRAL, has been quite impressive over the years in allowing the public to have their voices heard when it comes to our tax law. When a proposed tax bill is released by Treasury, it is usually accompanied by a call for the public to comment. With the annual Draft Taxation Laws Amendment Bill (TLAB), a second opportunity may be granted for the public to comment on the proposed legislation. After going through the comments received from the public, a “response document” addressing those comments is released.

At the time of writing, SARS, Treasury and the Davis Tax Committee have sought the public’s input on 35 different tax issues during 2014. These spanned across all tax types, ranging from VAT to customs duty. The Response Document from National Treasury and SARS, as presented to the Standing Committee on Finances, shows that National Treasury and SARS received responses from 87 organisations and individuals and held workshops with stakeholders to discuss and review their comments regarding the 2013 draft TLAB. There were also general workshops held for issues pertaining to business and personal income tax, VAT, international taxation and tax administration. In 2012, responses to Treasury’s call for comments for the 2012 Draft TLAB numbered over 511 pages provided by approximately 58 organisations.

Depending on the validity of the points raised by the public in Treasury’s “call for comments”, an amendment of the draft tax bill may follow.

When business gets involved

The venture capital company (VCC) tax regime provides a perfect example. First  legislated in 2009, the regime was enacted with the intention of making it easier for smaller businesses to obtain private equity finance. It was intended that this would be achieved by providing would-be funders with what the legislators thought were very enticing tax concessions. Unfortunately, the take-up of this regime has been rather unsatisfactory, much to the disappointment of policymakers.

As intelligent as legislators may be, even they have blind spots which may prevent them from identifying practical problems which may derail their original purpose for a particular provision in the tax law.

In the 2014 draft TLAB, some amendments to the VCC regime have been proposed. This will increase the tax benefits for venture capitalists. According to the CEO of the Southern African Venture Capital & Private Equity Association (SAVCA), these amendments happened because:

[blockquote author=”” ]Our industry and its partners…have been working closely with government on enhancing these provisions, and the recently released Draft Taxation Laws Amendment Bill demonstrates Treasury’s commitment to stimulating investment across the venture capital industry…they significantly enhance the attractiveness of tax incentives available to venture capital investors…and in turn this should stimulate greater levels of investment into small and medium-sized businesses in South Africa…we have been impressed with SARS’ willingness to engage in open dialogue in this regard.[/blockquote]

Instead of just complaining about the ineffectiveness of the existing VCC regime and how government should have known better, the venture capital and private equity industry decided to “grab the bull by the horns” and get involved in the legislative process. And their involvement proved fruitful. Over the years, other industries have done the same thing and seen similar results.

The example of SAVCA shows that even though tax is the domain of specialists, input from the business community is also necessary. Tax consultants need to work together with their clients to identify problems with either existing tax laws or proposed changes. The SMME sector, as a whole, needs to show the type of initiative displayed by the private equity and venture capital industry.

For instance, the majority of businesses pay VAT on the ‘invoice basis’. VAT must be paid by the 25th of the month following a tax period, otherwise penalties and interest are imposed by SARS on late payments. For VAT purposes, a tax period is typically 2 months long. The VAT on sales made during the January-February tax period, for instance, must be paid by the 25th of March. If a VAT vendor does not extend credit to any customers, this will not be an issue. But many SMMEs sell goods and services on credit. Sometimes these businesses find themselves regularly ‘squeezed’ by customers taking up to 3 months to pay.

The business may often find itself having to pay VAT by the 25th, but not having enough money to do so because payment was not received from customers. Funds earmarked for more pressing business needs may need to be used to pay for VAT, thereby limiting the ability of the business to fully realise its economic potential. This is a common cash flow problem, hitting SMMEs the hardest.

However, if the sector were to organise itself well enough to make its voice heard, and approach Treasury with reasonable solutions to this problem, there is no reason why a change cannot take place, as SAVCA has demonstrated.

Conclusion

Top accounting firms, the South African Institute of Tax Professionals (SAIT) and the South African Institute of Chartered Accountants (SAICA) are some of the organisations that make dozens of submissions every year to Treasury, commenting on the proposed amendments to the tax law. In order for these organisations to be as effective as possible, the business community, especially the SMME sector, must give more input.

I can certainly appreciate the fact that business owners are primarily concerned with ensuring the success of their enterprises and for that reason, commit most of their time towards that end. Having that in mind, my suggestion is that tax consultants set aside a few minutes in their meetings with business owner clients to discuss how proposed amendments to the law may affect them and how they can have their voices heard should they disagree with Treasury’s proposals. These concerns can be forwarded to organisations like SAIT. This is one of the ways in which we can all make a contribution to reasonable tax laws, as well as our democracy.