‘apology scuppers “poke for prosperity” plan’ · did not buy its own head office, as some...

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—An irreverent newsletter designed to keep you up to date—

His Excellency, Comrade the rev Dr Francois ‘Papa Doc’ Duvalier-Leckett, spokesperson in the Office of Costa Divaris:

‘Apology Scuppers “Poke For Prosperity” Plan’

—Presidential spin doctors hurriedly can programme to ‘prick-start’ economy through baby boom among wabenzi class.

In this issue: Listing Notebook Cases Briefing Davey’s Locker Evidence corner Shortcut keys in Word Accessibility: We are now running a parallel subscribers’ list for the Word version of this newsletter, also free.

MONTHLY LISTING Latest Legislation & Legislative Material To Emerge Or To Be Found Since Issue # 82

Unless otherwise indicated, everything listed here is cumulatively included in the Tax Shock, Horror Database, which is available monthly, quarterly or even individually on DVD by post for R140 per month inclusive of VAT at 14%.

Updated guide 27 July 2009: I am totally confused, having found an AS–IT–PT–01 ‘Reference

guide—provisional tax’ with this effective date & marked ‘rev 6’. Revision 5 was dated 10 July 2009, just days before. All the attachments remain unchanged. Ac-cording to my records, this ‘quality document’ has been updated three times.*

IRBA 2009 21 August 2009: I was tipped off about an irregularity in the financials of the very body regulating the auditing profession. The IRBA 2009 annual report does indeed include details of R11,4 million in irregular expenditure as judged under the PFMA rules. The incident, involving hired premises, seems innocent enough. At least IRBA did not buy its own head office, as some other professional bodies are prone to do.

News24 08 December 2009: Amongst an amazing catalogue of things going wrong at SARS, & on a big scale, I see that the ‘rate of cargo examinations at large ports is less than 2%’, according to the DA’s Dion George. In 81 TSH 2009 I doubted the accuracy of the SARS figure of between 5% and 10%, relating to containers.§

News24 25 January 2010: The East London woman who chained herself to a SARS chair (82 TSH 2010) was Sandy Nienaber, &, according to SARS spokesperson Adrian Lackay, she was paid the money she was owed by SARS.§

GN 50 GG 32898 29 January 2010: Request for an amendment to the statutory levy payable on cotton lint under the Marketing of Agricultural Products Act.

GN 52 GG 32898 29 January 2010: Draft levies on fish & fish products under the Sea Fishery Act. GN 54 GG 32898 29 January 2010: I’ll accept that fishing harbour fees levied under the Marine Living

Resources Act represent a user charge (GN 53 GG 32898—draft §) but application, rights, permits & licence fees to fish & carry on related activities (draft)? A tax, I say.

The Economist 30 January 2010: Advertisement by ‘Africa’s Winning City’. Joburg, it seems, har-bours a ‘commitment to providing a vibrant & safe environment for its visitors, inves-tors & residents alike’. It also boasts ‘the infrastructure that is vital for commerce & industry, for growth, for a better life’. Hmmm. Anybody visit Cape Town lately?

Online tools: New! February 2010: I am very pleased to report an invitation to receive SARS commu-niqués not requiring any stupid copyright commitments, to be found in the ‘Tax prac-titioners’ section of the SARS website. (In fact, the entire SARS website is plastered with these invitations.) I have submitted my e-mail address & await developments with interest. Oops! Nothing happens when I press ‘Submit’.*

Online tools: New! February 2010: I wonder if the same thing happens when you complete the ‘2010 tax practitioners’ survey’.*

Online tools: New! February 2010: Mysteriously included here is a document headed ‘Increase in vol-untary registration threshold/Notice of intention to cancel VAT registration’. If you re-

February 2010®

0 0 8 3 6 6 0 9 6 8 3 4 Tax Shock, Horror newsletter by Costa Divaris Issue # 83 Database items: 6 609 Subscribers: 6 834.

83 Tax Shock, Horror 2010—February—2


ceive such a piece of rubbish get advice, since it seems to me to be wholly uncon-stitutional. These clowns appear to want comments. Mine are unprintable in a family newsletter. (Elsewhere, this document is listed as ‘Tax practitioners’ newsletter 04/2010’, dated 9 February 2010! I have no idea what happened to newsletters ## 2 & 3.) As I so often point out, these tools can’t count.*

s 18A PBOs February 2010: Updated list of organizations authorized to receive deductible dona-tions. It is 110 pages long.*§

Estate duty tsatske February 2010: Some sort of commentary on the latest estate duty amendments. I waste my breath, yet again: Why can’t SARS devise a document- & file-naming-&-tracking system, and keep its website users informed through a central registry of all new & amended documents? And I don’t mean the ‘quality document’ system.*

Beeld February 2010: Let me get this off my chest. Always an outstanding newspaper, although a little slow with the news of the day, during the current recession Beeld is, in its role as a general newspaper, creaming its competitors, across the board. I take that as a compliment to its grateful readers, while the majority of its competitors show how unimportant readers actually are to management. Well done, Sirs!

Beeld 01 February 2010: Leader on the brilliantly evil explanation of the origin of squatter camps by the minister for human settlements (farmers, of course; see 82 TSH 2010).

Draft IN 02 February 2010: Draft interpretation note on the ‘Rules for the Translation of amounts measured in foreign currencies’. Shades of the Caltex case! What a brave enterprise. I shall certainly make use of this document.*

BPR 075 02 February 2010: Lump-sum benefit to be paid from a deemed public sector fund & the application of ‘formula C’.*

The Star 02 February 2010: Michael Rosholt (the Michael Rosholt?) in a letter to the editor on how many years it will take to ‘arrest the decline’ of Johannesburg.

BPR 076 03 February 2010: Nature of income in the hands of a vested beneficiary of a trust. Please, don’t let the applicant be Prudential (see, for example, 82 TSH 2010)! A unit trust is going to be a ‘vested beneficiary’ of a trust to be formed. (Thus it will be the sole beneficiary of a single-beneficiary trust. Doesn’t anyone read this newsletter? Does the term nudum praeceptum ring any bells?) The unit trust will then lend the trust money by way of a debenture (big word for a loan). The trust will use the money to buy dividend-producing investments. The trust will distribute the dividends to the unit trust, in its capacity as beneficiary, not as a return on the loan. What kind of rubbish is this? In my view, the trust is invalid, ab initio. Some of my more con-servative colleagues would perhaps not go so far; they would say that the trust is a single-beneficiary bewind (what an incredible idea!), from which the unit trust can demand its property at any time. All of us would, I hope, agree that the trust property is exposed to the unit trust’s creditors. I suppose the debenture is intended to give the applicant a preferential claim. If I were a creditor, I would love to have a go un-der the Insolvency Act & general principles. The COO of Prudential, if he were in-volved (& there is no reason to suppose that he is), would no doubt claim that SARS ‘approved’ this zany arrangement.*

Beeld 03 February 2010: Here’s a DG, of rural development & land reform, who under-stands the national condition, although his science is perhaps a little whiffy. Small countryside farmers, he says, must give up their tractors (they have tractors?) for hand-ploughs & oxen. He bought one the other day. (A hand-plough, that is.) His purpose is to counter global warming, &, I suppose, since he recommends the use of existing oxen, he has factored in the hothouse gasses our animal classes alleg-edly, er, release into the atmosphere. (Just the other day I attended a talk at which Brian Kantor remarked that, if we want extra employment, we must become less productive. Was the DG there, too, & didn’t he get the joke?) The DG’s department is going to spend R250 m in the next fiscal year to rebuild failed farms (those previ-ously given away by the state).These farms are going to be run by the department, & he calls upon private-sector farmers to help. A system in which farmers freely produce food without parasitizing society is called ‘free-market economics’, which runs a little differently. In its early years the ANC government took exciting steps to further such a system in the agricultural sector.

Sake24 03 February 2010: Jac Laubscher on the sudden unraveling by fate of thirteen years’ sterling effort by the state to fix the national finances. Unfortunately, he says, the drop in state financing costs, now seen to have been temporary, was used to fi-nance social grants, a permanent increase in outgoings. In the face of the entirely different circumstances now prevailing, his solution calls for a deliberate determina-tion of the desired size of the government & a switch to ‘zero-based budgeting’. I haven’t heard that term uttered in ages.



Beeld 04 February 2010: The acting DG in the department of water affairs says that only thirty out of SA’s 283 municipalities have properly operational water-delivery ser-vices. Citing an ‘acute risk’ of an outbreak of disease, she marks twenty-three mu-nicipalities in a sewage ‘crisis’, ninety-nine on the way there by July & a further 110 on the department’s ‘risk-list’. Yes, yes, yes. But are salaries being paid promptly & generously to our selfless municipal management teams? Perhaps even higher salaries will attract a better class of thief.

Sake24 04 February 2010: That horrible little man who once held high office was no fool. Under the guise of letting ‘a thousand flowers bloom’ in the civil-society sector, he & his collaborators devised a system that would allow them effectively to either bless or curse any particular NGO, without anyone noticing. Part of that system is the Na-tional Lottery Board, which is currently sitting on R2 billion waiting to be distributed to needy beneficiaries (last year: R3,7 billion). The lottery is thus a hugely perni-cious, politicized tax. Nor is it voluntary, thanks to the state monopoly over lotteries.

GN 68 GG 32916 05 February 2010: Application for statutory measures on fresh mangoes intended for processing, including a levy.

GN 69 GG 32916 05 February 2010: I rub my eyes in disbelief. Nothing like this has happened in dec-ades. The Mpumalanga Provincial Library Service has been designated an Official Publications Depository as from 1 November 2009. On my reading of the Legal De-posit Act, however, this notice is unconstitutional, since it is both retrospective & not confined to ‘certain prescribed categories of documents’. Confusion must reign in publishing circles. Could this represent ‘ambush’ legislation, like the SABC 1% tax?

BCR 017 05 February 2010: Creation of a permanent establishment if a foreign partnership carries on business in SA. Complex arrangements with financial services involving en commandite partnerships & an offshore company, which SARS, in an aside, says will be effectively managed here & so a ‘resident’ for tax purposes. I wonder if SARS applied its ‘branch-level’ standard of effective management, which is probably unique, worldwide, & if its obiter dictum was welcome to the applicant.*

Beeld 05 February 2010: SALGA calls for the reinstatement of RSC levies. Sake24 05 February 2010: Crane supplier SA French Ltd underpays R5 m VAT on the sale of

two cranes. The error was reported as a material irregularity by its auditors. Well done, chaps! Did the buyer of the cranes call for the issue by the company of a tax invoice? Was it issued one? Did the buyer perhaps claim a VAT input tax deduction under the mistaken impression that it was acquiring ‘second-hand goods’? If so, did it obtain the necessary documentation? This represents an incredible breach of the VAT laws by a listed company. Does SARS have the bottle to examine it?

Master’s office 05 February 2010: Stan Levy tells me that Adv Lothian ('Lester') Basson, who was the acting Master of the Gauteng High Court, Johannesburg, has been appointed acting Chief Master. Ms Nondumiso Gagela has been appointed acting Master of the South Gauteng Hig Court Johannesburg. These appointments are as yet not re-flected on the Department of Justice website.

Beeld 07 February 2010: Zuma: I’m sorry for the pain I’ve caused you. Business Day 08 February 2010: State defends increase in fishing permit levies. Sake24 09 February 2010: Debt owed to Eskom by individual municipalities leaked to

Sake24, while the National Taxpayers’ Union continues its attempt to extract the in-formation under the Promotion of Access to Information Act.

GN 123 GG 32943 09 February 2010: Extension of time for comments on the ‘rectification’ of the new Companies Act 71 of 2008…to 19 February!

Sake24 09 February 2010: ATNS’s regulator waves through a 43% increase in the tariff for air-traffic control & navigation services, to be implemented as from 1 July 2010.

Business Report 10 February 2010: Azar Jammine on whether there is ‘any point in rushing to inter-vene to weaken the currency’ when global events—in his view the major determi-nant of the exchange rate—are likely to do the job. Daily transactions in the rand are worth $14 billion, he says. I’d love to see someone command those waves.

Beeld 10 February 2010:Professor Flip Smit on why proposed rural development will never obviate the need to fix our cities and towns.

Sake24 10 February 2010: Thanks to glitches at CIPRO & the difficulty of registering a com-pany as a VAT vendor with SARS, prospective entrepreneurs are looking to buy exist-ing companies already registered as vendors, says reporter Jana Marais. I can’t think of a worse idea. SARS spokesperson Adrian Lackay is suspicious of offers on the internet for the sale of such companies, & doubts the validity of their VAT regis-tration numbers. He says that the SARS aim is to register a vendor within five week-days. Most tax practitioners would probably greet that assertion with incredulity. Al-together unsurprisingly, given its utter lack of judgment & forensic competence, the



reason why SARS has tightened VAT registration procedures, confirms Lackay, is out of a fear of refund frauds. As Michael Stein often points out, the remedy is surely to audit refund claims, not make registration near-impossible. Fraud in the CIPRO sys-tem is illustrated in this report by refunds by SARS of R51 million to Sun Microsys-tems & SBC International Management clone-companies. Shelf Company Ware-house no longer offers VAT-registered companies for sale. In other words, it used to.

New EMP 201 11 February 2010: Says SARS: ‘Employers will enjoy the advantage of a simplified form, which means fewer resources spent on the monthly declaration process. When the new EMP 201 form comes into effect you need only make one payment for PAYE, SDL & UIF. The form will also allow you to adjust previous declarations and real-locate credit amounts to other periods.’*

Online tools 11 February 2010: Notice # 05/2010 on ‘Reminder to taxpayers in receipt of travel allowance for taxpayers to record mileage’ (sic).*

Sake24 11 February 2010: CIPRO acting head acknowledges that it cannot keep up with ap-plications for registrations of ccs & companies. It is resting its hopes on some new software. Dream on, Baby Two-shoes! Unless the applicants are all tax fraudsters, I see this breakdown as a good sign of a reviving economy. What we are not told is to what extent the fiasco may be blamed on measures introduced last year to discour-age tax fraud. Sake24 reminds its readers that in August last year five CIPRO work-ers were suspended for their suspected involvement. For the benefit of my three offshore readers, I point out that suspension from public office, almost always on full pay, is SA’s equivalent of capital punishment.

GN 126 GG 32950 12 February 2010: Intention to impose fees for the provision of aviation meteoro-logical services under the South African Weather Service Act. User fee or tax?

New IN 12 February 2010: Interpretation Note no 53 ‘Limitation of allowances granted to lessors of affected assets’. On the sometimes controversial s 23A of the Income Tax Act. A fine, scholarly piece of work. Does it vindicate what was said in 68 TSH 2008 on car-hire firms? I think it does. I am glad to see SARS using the Collins English dic-tionary, which is excellent, being surpassed only by Bloomsbury, which, alas, may not be available in electronic form.*

Employers 12 February 2010: Something new? from the ‘Employers’ Unit’—Notice # 01/2010 on ‘PAYE: contributions to a medical scheme to be taken into account for employees’ tax purposes from 1 March 2010’.*

BPR 077 12 February 2010: Talk about ex abundante cautela! An RAF award is transferred by the curator ad litem to a trust to be administered for the benefit of the claimant—‘and that person’s family’. Thus the trust is luckily not a single-beneficiary trust. Of course there is no donations tax, income tax or CGT. My new contacts in this field tell me such appointments & arrangements are de rigueur & that no one would dream of worrying about tax in such circumstances.*

Online tools 15 February 2010: Notice # 06/2010 on ‘Operational issues’. SARS is training its staff at last! From 08h30 to 09h00 on Wednesdays. The cock-up on provisional tax forms was clearly noted on the said forms. Individual taxpayers must use the NOO & NOA forms for objections & appeals. Yeah? Says who? (See 82 TSH 2010.) These forms remain unavailable on the SARS website. I have sent in an objection for an individual using the old, proper form & am awaiting the official response.*

SARS notice 15 February 2010: Notice # 1/2010 on the ‘2010/2011 Turnover tax registration’. The filename suggests that SARS takes this to be a ‘turnover tax newsletter’.*

BPR 078 15 February 2010: Income tax consequences of leasehold improvements for both the lessor & the lessee. This is the first instance of taxable/deductible leasehold im-provements I have come across in decades. Something untoward here, perhaps?*

Business Day 15 February 2010: Reporter Julius Baumann on the seven ‘taxes’ air passengers pay: ACSA’s passenger service charge; an SA Civil Aviation Authority compliance charge; an air passenger tax; VAT; an airline collective Aviation Co-ordination Ser-vices charge; an aviation insurance premium; & an airline fuel surcharge.

MOF to SARB 16 February 2010: To ‘Dear Gill’ from ‘Pravin’, a billet deux entitled ‘Clarification of the Reserve Bank’s mandate’. In my view, the SARB acts as it does in keeping rates high mainly (& futilely) to discourage the rest of the government from wrecking the economy. Here the MOF repeats the lie or, at least, empty promise that government will deliver on microeconomic reforms first uttered by that horrible little man who al-legedly read economics at a recognized, albeit left-wing university.

Business Day 16 February 2010: Book publisher Van Schaik calls for zero-rating of all books. At least its self-interest makes its promotion of a dumb idea rational.

Business Day 16 February 2010: An outstanding exposition by Annabel Bishop on the conse-quences of a substantial currency devaluation. It is strange that the Investec eco-



nomic team includes both her & Michael ‘7 cents’ Power (see 76 & 80 TSH 2009). Sake24 16 February 2010: Lindie Engelbrecht, outgoing CEO of the Institute of Directors, on

why she is ‘hopefully optimistic’ that the new Companies Act, due to come into effect on 1 July, will not become operational this year. The government clearly harbours reservoirs of legislative incompetence elsewhere than in the National Treasury.

Budget (Treasury) 17 February 2010: Budget speech—I don’t rate the MOF at all, although I respect his struggle credentials & political nous, but his performance on this occasion could change my mind. For once, he is taking advice from decent sources & listening. It was no mean task to step creditably into the shoes of the world’s most famous min-ister of finance. As usual, I single out from the National Budget Review: chap 1 ‘Transforming the SA economy’; chap 4 ‘Fiscal policy’; chap 5 Revenue trends & tax proposals’; & Annexure C ‘Summary of additional tax proposals for 2010/2011’. The proposed strike against ‘salary-structuring opportunities’ ought to prove interesting, seeing that it manifests itself mainly in the public sector. But the promotion of ‘Is-lamic-compliant financing’ will enjoy my support, as will some long-delayed VAT relief for property developers caught by downturns in the property market, for which I once lobbied. The proposed ‘further refinement’ of the replacement of the STC will, I hope, prove to be yet another nail in the career prospects of Public Enemy # 1, the Treasury’s Keith Engel, who deserves to lose his job in any event, subject to repara-tions to the nation payable by his erstwhile home country.*

Budget (Treasury) 17 February 2010: ‘2010 Budget highlights’ & ‘Budget 2010—a people’s guide’.* Budget (SARS) 17 February 2010: ‘Budget 2010/011—tax highlights’, ‘Budget 2010/2011—tax

pocket guide’ & the one document you should read if you give advice: ‘Budget 2010/2011—tax proposals’. It usually (although not always) includes in one place all the proposed amendments to the tax laws. Thanks to the bozos at the Treasury & SARS in charge of these things, you can never tell what effective date will be at-tached to any particular amendment, yet we continue to pay their salaries. I am still waiting for someone in government to realize that the higher effective tax on travel-ling allowances is going to lead to a call for an increase in the salaries of politicians & their fellow-travellers.*

GN 141 GG 32962 17 February 2010: And so it begins, an entirely fresh source of taxation & ‘interven-tion’—the environment. This nutty document sets out draft regulations for the licens-ing of ‘atmospheric emissions’ under the National Environment Management: Air Quality Act, which I had a quick look at. My suspicion is that all this is unworkable.

Draft rule 17 February 2010 (?): Proposed amendment of rule 28 of the regulations made under s 36 of the Pension Funds Act for comment. This has to do with investments & financial management.

Draft EM 17 February 2010 (?): ‘Draft explanatory memorandum on the draft regulation 28 that gives effect to s 36(1)(BB) of the Pension Funds Act 1956, 2010’.

Excon circular 17 February 2010: No 5/2010 (no, I don’t know where all the others are), drawing attention to excon reforms in the 2010 Budget. It is just possible that excon law will soon no longer be secret. How boring.

SARB release 17 February 2010: Paper by N Brink & M Kock on ‘Central bank balance sheet in SA & its implications for money-market liquidity’ (WP/10/01). The report itself (§) is so jargon-filled as to lie at the limits of comprehension but what I think the authors are trying to say is what has been obvious for a long time—excessive growth in money supply is inconsistent with high real rates of interest. In other words, SARB policy is schizophrenic & self-defeating.

New guide 17 February 2010: EMP 201 ‘A guide for employers to the new monthly declaration process’. Also ‘PAYE FAQs’.*

No new guide 17 February 2010: SARS has published only the weekly, fortnightly, monthly & annual PAYE tax tables, without updating the ‘quality document’ version of the ‘Guide for employers’ & its ancillary bits & pieces.*

SARS tsatske 17 February 2010: Impending changes to the subsistence allowances. R85 (R80) daily for incidental costs only & R276 (R260) daily for meals & incidental costs, plus a presumably revised schedule for foreign travel, still wildly generous.*

Business Day 17 February 2010: The illustrious Anton Harber ascribes the current, sorry state of the press to editors rather than management. Yet how much can you trust his judg-ment when he accepts the claim of one ‘leading’ editor that revelations about the Prezzie’s latest little pod are ascribable to ‘good old-fashioned muck-raking’ by the press? Puleeze! A week or so before the President’s SONA? In the month in which The Thinker not only survived its first year but carries JZ on its cover under the cap-tion ‘Equal to the task’? The same month in which the MOF out-Maunelled Manuel, & young Julius was specifically targeted by threatened ‘lifestyle audits’? The ‘news’



(actually four months after the blessed event) was obviously leaked by an enemy. You read it here first: the Mbeki canaille are suddenly the only show in town.

Sake24 18 February 2010: Reporter Jana Marais on how Mauritius did what we can’t. SARS logbook 19 February 2010: A note on the travel eLogbook & the 2010–2011 logbook itself.* Business Day 19 February 2010: Leader on the MOF’s expanded mandate to the SARB, so de-

scribed by the MOF himself. Business Day 19 February 2010: The Financial & Fiscal Commission finds its voice. I can’t re-

member when last this obscure quango made it into the press, but here it is growing alarmed over the state’s ballooning cost of finance & salary bill. Borrowing, it cor-rectly says, should finance infrastructure & not salaries.

Business Day 19 February 2010: DA claims that nineteen state departments spent more than R3 billion on luxury travel, restaurants & accommodation over nineteen months.

Business Day 19 February 2010: No rush to increase tax, says Treasury man. Communiqué 21 February 2010: Meeting of the committee of African ministers of finance & plan-

ning & governors of central banks (Committee of Ten). A good time, it seems, was had by all—at the expense of the SA taxpayer. Cheers!

The Times 22 February 2010: De Lille calls for tax probe of Malema. The Star 22 February 2010: Malema blames Mbeki. Wise but nevertheless doomed lad! Business Day 22 February 2010: Reader Basil Hotz raises a good point about the tax implications

of the many & generous gifts being made by selfless, public-spirited businesspeople to politicians. A genuine gift would be liable to the donations tax (subject to a threshold exemption) but a bribe would today be taxed. The deduction of bribes is today specifically prohibited by s 23(o)(i) of the Income Tax Act (a provision whose introduction I like to think I encouraged). An agreement to pay someone else’s rent would have interesting fiscal consequences, depending upon its exact terms.

Business Day 22 February 2010: That smart guy, editor Peter Bruce, records what we should all already know: ‘Most investigative journalism in SA these days arrives all neatly bun-dled on a journalist’s desk….’ Young Julius is clearly a victim of that process, & so, too, in my view, is the priapic President. Cui bono?

Business Day 22 February 2010: The eminent Greg Mills on the incredible turnaround since 2003 of Georgia, also doing what we can’t. Yes, the country at war with Russia in 2008.

Business Day 22 February 2010: A jolly good piece by Jabulani Sikhakhane on the real constraints in the affordable housing market. Families who ‘should not be there’ get into RDP housing developments ‘because they can afford to pay bribes’. Yup, it’s a tax.

Business Day 22 February 2010: UCT’s Professor Anton Eberhard on electricity subsidies to the poor (what I would call negative taxes). He says that one-third of Eskom’s 4 million registered household consumers ‘recorded no electricity consumption over the past year’. Either they have switched to other fuels or are stealing power, he suggests.

SARS release 23 February 2010: SARS to extend office hours.* SARB release 23 February 2010: She was once very rude to me when I was only trying to help but

I cannot but warm to a governor who claims it is ‘nuts’ to allow some private SARB shareholders ‘to set the agenda for a debate on nationalization’ of the SARB. (Say it not in Bath but the Guv, alas, needs some editorial & technological assistance.)

Business Day 23 February 2010: I lost but did not forget this month’s most important clipping—Brian Kantor finally coming out with it & specifically accusing the SARB from keeping interest rates too high for too long, a view that, he believes, is now shared by the Treasury. The MOF’s letter this month to the SARB governor is a ‘new mandate’, ac-cording to Kantor.§

SAIT seminar 23 February 2010: Odd this, an ad for a seminar on the Tax Administration Bill. As far as I can tell, only a draft bill has so far been released.§

SARS release 24 February 2010: SARS reminds taxpayers with car allowances to record their odometer readings.*

Sake24 24 February 2010: Reporter Greta Steyn specifically disagrees with Kantor. She thinks the MOF’s clarification of the SARB’s role sowed nothing but confusion.

The Star 24 February 2010: Julius Malema claims to have—and to be included in—a list of those targeted by SARS for lifestyle audits. SARS spokesman Adrian Lackay says: ‘SARS has a proud record of integrity & applies the law with fairness, with impartiality, & equally to the affairs of all taxpayers.’ Once, maybe. Today? What tosh, man.

The Star 24 January 2010: Four Athletics SA officials buy cars from it at R1 each. There is nothing wrong with such a transaction…if contractual & properly taxed.

Treasury release 25 February 2010: Local government budgets for the 2009/10 financial year, second quarter s 71 report.

Beeld 25 February 2010: Correction (see 82 TSH 2010). There is no fringe-benefits tax to be paid on firearms lost by the SAPS, since these were issued not to individual offi-



cers but to police stations. Well, that’s okay, then. Beeld 25 February 2010: Actually, five Athletics SA officials bought cars for R1, & the inci-

dent occurred in 2004. Beeld 25 February 2010: SARS’s Adrian Lackay admits the existence of Malema’s hit-list

but denies that SARS composed it or that it is used to further political ends. New IN 26 February 2010: Interpretation Note no 54 ‘Deductions—corrupt activities, fines &

penalties’. This represents a very wide but not necessarily incorrect interpretation of the law. I suspect it is sound. If so, management should read it.*

Business Report 26 February 2010: SALGA calls for local business taxes to fund municipalities. The Treasury is ‘continuously’ reviewing municipal financing, which includes an equitable share of national collections, a grant derived from the fuel levy to make up for the loss of RSC levies & (not mentioned in this report, which seems to have been based largely on comments by Paul Berkowitz) an electricity mark-up & rates & service charges. In such a confused fiscal environment, I feel uncomfortable at the mention of ‘unfunded mandates’. That’s a far too grown-up & joined-up idea to be applied to the dysfunctional municipalities of the world’s most successful failed state.

Business Day 26 February 2010: Malema has threatened SARS with legal action if it makes public any detail of his tax status. I agree that this is a suspicion-engendering threat, since a breach of the secrecy laws by SARS is an unheard-of occurrence.

Mail&Guardian 26 February 2010: The alleged SARS hit-list & its targets. Mail&Guardian 26 February 2010: The alleged Deep Throat behind the alleged SARS hit-list, ex-

SARS employee Mike Peega, who claims that the targets are all ‘JZ sympathizers’. Sunday Independent 28 February 2010: Julius Malema, this report alleges, now falls under the SARS par-

liamentary services unit, which, I take it, is the same crowd that, since the days of the Nats, exists to facilitate, er, tax-easing measures by the politically powerful (for example in the treatment of their travelling & ‘constituency’ allowances). It is also claimed that young Julius is being dunned by SARS for the payment of ‘undisclosed’ amounts. Even the cipher whose image adorns the SARS home page (previously ‘the Commish’) has entered the fray, by allegedly circulating what seems to be a very foolish internal memo on the need for confidentiality, which reveals that he delights in the delusion that he presides over a ‘world class’ tax administration, which ‘ap-plies the law with fairness, impartiality & equality’. (SARS would not recognize the law even if the law farted directly in its collective face.) SARS spokesperson Adrian Lackay reveals much about a now-defunct SARS special project unit, which suppos-edly penned the SARS ‘hit-list’. The police have been involved, & ex-SARS staffer Mi-chael Peega’s claims have been rejected. Lackay alleges that Peega is involved with two other ex-SARS staffers, who left or were fired under a cloud.

Sunday Independent 28 February 2010: Editor Makhudu Sefara’s amazing front-page article on the ‘life-style audit to-and-fro’, which is really about the incredible, careless wealth of young Julius. You need to read it for yourself, but here is an appetizer:

Others may correctly argue that he [the current MOF] is the man who fixed Zuma’s tax problems when the Thabo Mbeki government wanted to put him behind bars, but this does not make him any politically stronger.

noseweek 01 March 2010: Tee-hee! Thanks to a lovesick, 47-year-old bookkeeper, who, to judge from court papers, cannot distinguish the window-side of a ledger from its door-side, I—that is, yours truly—make not just the cover, not just a three-page arti-cle but a recycled cartoon in this sober monthly. (Just in case you, yourself ever have to experience this rite of passage of SA life, know that the ‘reporter’ apparently involved, Hans Muhlberg, is, in the execution of his job, incoherent, unprofessional, imprecise & unfair, but my spokesperson will deal with him more fully under the right of reply.) I don’t mind telling you that this matter enjoys salacious highlights, such as a written fee-claim for intermittent sexual favours & an allegation of ‘hand in hand’ ambulation with a ‘twenty-five-year-old’ female. For some of the action, see 81 TSH 2009, to which I might add that abuse of the Domestic Violence Act carries a maxi-mum sentence of five years in jail. Penalties for perjury are no doubt as severe.

* On the SARS website. § Not included in Tax Shock, Horror Database.

LOST & FOUND TSH Database This month 95 items were added to the Tax Shock, Horror Database. Tax tables Since 2007 the Commish has failed to gazette the annual tax tables. Provisional tax tables Since forever the Commish has failed to gazette the annual provisional tax tables. Exempt grants & Since 1 February 2006 the MOF has neglected to issue the Gazette notice required scrapping payments to make s 10(1)(y) effective. Don’t tell the taxi industry. Amendments in My latest Amendments to Amendments shows about seventy-two provisions await- abeyance ing presidential proclamation & thirty provisions awaiting ministerial gazetting.



MONTHLY TAX NOTEBOOK

My weak legal nerves

Subscriber Piet Nel will forever more be a great tax mind and researcher in my book, since he was able, where I failed, to track down the quotation to which I referred in 82 TSH 2010, somewhat man-gling its exact terms. It arose in the famous case of Pyott Ltd v CIR 1945 AD 128 at 134, where Davis AJA attributed it to the illustrious Chief Justice Innes:

I see such insuperable difficulties in holding anything of the kind that I venture to repeat and adopt what was once said by INNES, CJ, in this Court: ‘My legal nerves

may be weak, but I confess that this argument comes as a shock to them.’

At the very cusp of showing off, he says the quote was repeated in the Zimbabwean case of ITC 1669 61 SATC 479 at 490, Smith J presiding.

At least I checked the quotation and all the cita-tions using the actual, hardcopy thingies they used to call ‘bound case reports’, which I usually never touch, from decade to decade.

Anyone for the original citation?

In‐community banking accounts on death

One of the reasons planners married in community of property choose to make their spouses benefici-aries under policies taken out on their lives is to provide the survivor with liquidity. (The other is to save executor’s fees.)

A procedure exists for an executor to ‘provide for the subsistence of the deceased’s family or house-hold’ (s 26(1A) of the Administration of Estates Act) but it requires both the appointment of the executor and the consent of the Master, events that will not necessarily take place within the blinking of an eye.

The jointly owned banking account must always look like the first place of refuge for the survivor, and I have heard of such accounts being released outside of the routines of executorship, but the law does not so provide.

The bank is bound to report the existence of the account to the Master, retain possession of it, sub-ject to a couple of riders, and then surrender it to the proper person—on pain, for starters, of itself falling liable to the estate duty payable on the ac-count (s 11).

Electronic tax invoices—go back to sleep

What has brought me back to this hoary topic was a report, which proved accurate, that: ‘Pastel Ac-counting Version 11’ meets the requirements for the issuing of electronic documents as set out by SARS.’ It would appear that the requirements to which Pastel refers are those set out in the SARS VAT

News issue # 20 of September 2002:

Tax invoices must be sent in encrypted format (at least 128 bytes), over a secure line or contain an electronic signature. The recipient of the supply must confirm in writing that he or she will accept electronic invoices for the purpose of claiming input tax. No other tax invoice may be issued and all copies extracted by the recipient must bear the words ‘copy tax invoice’. Debit and credit notes may accordingly also be issued electronically, subject to the requirements set out in the VAT Act.

(I notice for the first time that what is said about ‘copies extracted by the recipient’ is simply non-sense—read s 20(1)(ii) of the act.)

As was pointed out in 67 TSH 2008, although this issue of VAT News appeared after the promulgation and commencement of the Electronic Communica-tions and Transactions Act, it fails to satisfy the requirements of s 28 of that act. It is therefore ultra vires or, more simply, unconstitutional, and may safely be ignored.

Should it wish to lay down any guidelines on data messages, SARS has to specify them by way of notice in the Government Gazette. Until then, you are free to issue and receive electronic in-voices in any form you choose, as long as you comply with the Electronic Communications and Transactions Act.

Small business amnesty—a not uncommon experience

Regular correspondent Carl Nielsen writes: A tax practitioner colleague is tearing her hair out over a situation relating to the small business tax amnesty.

A distant memory by now, you might barely recall that the amnesty was driven by income tax consid-erations (in order to qualify, you had to render a return for the 2006 year and pay tax on that in-come) but it covered also the peripheral taxes (VAT, PAYE, SDL, UIF) up to 28 February 2006.

While she made an application for amnesty in the correct manner and at the correct time, SARS

decided to push ahead during the long wait for a response from the amnesty unit (did they call it a ‘unit’ because there was only one person working there?) with legal action to force the taxpayer for whom amnesty had been applied to render VAT returns for the period covered by the amnesty. It seems that they went as far as threatening criminal sanctions.

Not wanting to end up in jail, the taxpayer ren-dered the returns. Because amnesty was expected to be granted, the amounts shown as being due by



the returns were not paid. In due course amnesty was granted. As anyone

who has seen the letter granting amnesty will know, SARS is clearly far more interested in the amnesty levy than the fact that the taxpayer has been granted amnesty. The letter barely mentions the amnesty, and certain doesn't list which taxes it covers. The bulk of it describes how the levy you now owe is calculated.

You can see what is coming: SARS is now ada-mant that, despite the amnesty having been granted, because the taxpayer rendered the VAT returns, the VAT owing is due and payable.

The real difficulty comes in trying to find out who to take this up with. SARS officials are interested in amnesty documents, and as for the amnesty unit: well, I think he or she died a few years back and no one even noticed.—CNI

Shakespeare’s corner

This also from regular correspondent Carl Nielsen, who says: ‘You’ve got to be impressed with SARS employees’ ability to ignore the full stop.’

Good day, Thank you for contacting our helpdesk. We refer to your e-mail received and kindly be advised

that your provisional tax has been activated and the re-

turn was issued on the 22/02/2010 and on efiling as well the profile was activated on the above date and you might submit this return manually as it might take long to reflect on efiling, for more info please contact our help desk on 0800 007277.

Kind Regards

The SARS E-filing Assist Team

Decommissioning of ships’ containers

Phillip West reports that SARS has sent the follow-ing message to a local shipping company, by which I take it he means a clearing and forwarding agent:

Please be advised that a general inspection is being conducted on the matter of containers temporarily im-ported in terms of Section 38 of the Customs and Ex-cise Act, Act 91 of 1964 (the Act). You will be aware that upon de-commissioning of containers, due clear-ance is required at customs, together with VAT being paid on the proper customs value thereof, as deter-mined at last date when the container entered the RSA.

It has come to our attention that contrary to previous compliant practices, various shipping lines have taken to disposing of de-commissioned containers without due compliance with customs and VAT procedures, ie

by simply selling and donating containers out of hand.

In the first place, SARS must be right to contact the agent, which is, after all, an ‘importer’ as defined in s 1 of the Customs and Excise Act.

Section 38 of that act conditionally exempts ‘con-tainers temporarily imported’ from being ‘entered’ under s 39, which essentially requires the produc-tion of a bill of entry and the payment of any duty due. Temporary imports frighten me to death but, I would hazard, a container returned to SA for de-commissioning and repurposing (as Adobe might put it) by no means qualifies as a temporary import.

It would be a full-on import, subject to all the usual rules, including entry, declaration and the payment of duty and VAT.

Local cell‐captives—Bah! Humbug!

The ‘captive’ ‘insurance’ ‘industry’ has been reck-less enough to draw my attention to BMW Financial Services (South Africa) (Pty) Ltd v Harding and Another [2007] 4 ZAWCHC 34; [2007] All SA 716 (c), a judgment that is supposed to bring some joy to—what shall I call them?—the industry’s unrecog-nized intermediaries. They certainly are not ‘opera-tors’ or anything else signifying a principal, as op-posed to an agent.

This is a complicated case, involving an attempt by BMW to recover a motor cycle sold under an instalment-sale agreement. It interests me, first, because it helps prove a tax point: local ‘cell cap-tives’ do not yield the fiscal outcomes claimed for them. Secondly, it raises serious concerns about the legitimacy of these arrangements under our financial-services laws.

One of the defendants raised the special plea that the agreement was void, on the basis that BMW

traded as a short-term insurer, either on its own or in partnership with Guardrisk, a short-term insurer, in violation of the Short-term Insurance Act.

Ha! Ha! What a piffling plea to destroy! This is precisely my point about these arrangements—the unrecognized intermediary, BMW, is not providing insurance! It is a mere agent for the insurer.

Moosa J, a sound judge, it seems, to have pre-siding over a commercial matter, made these tell-ing points:

The suspensive sale agreement and the insur-ance contract were severable. Why? Because the insurance contract was entered into with Guardrisk, not BMW. Are you surprised? (Hint: Only Guardrisk is registered as a short-term in-surer. Hint # 2: It is illegal otherwise to purport to sell cover.)

The application for insurance was submitted to a broker, Glenrand MB, which issued the policy on behalf of—Yes, you got it right!—Guardrisk, the registered short-term insurer.

Was ‘BMW Insurance’ a trading name? Don’t be ridiculous! This allegation was denied by no less a personality than the MD of Guardrisk itself. The



product—to you, the cover—was supplied not by BMW but by Guardrisk. Are you surprised?

Was BMW in partnership with Guardrisk? What an absurd proposition! BMW held some cocka-mamie ‘A ordinary shares’ in Guardrisk. Sue Moosa JA, not me, for telling it like it is:

Such structure also permits the larger corporate clients to involve themselves in the field of insurance by enti-tling them to have a say in the administration of the ‘cell-captive’ and deriving a financial benefit from the ‘cell-captive’ in the form of a dividend.

Where, Oh where, did the financial benefit come from? The Guardrisk MD once again told the truth. Glenrand administered the cover on be-half of Guardrisk, which received all the premi-ums, and paid all the expenses, earning its re-turn from administering the cover and carrying the risk. Any ‘profits’ went to what I have called the unrecognized intermediary, BMW.

The relationship between Guardrisk and BMW was governed by their shareholders’ agreement, and was not a partnership.

To which I add:

Even if the registrar of short-term insurance kissed, blessed and swung the incense-burner over the shareholders’ agreement, he did not thereby mystically convert BMW into a short-term insurer. (How was he persuaded to perform these rites, anyhow? And why?)

Yet BMW arranged applications for insurance, for reward, by way of the ‘profits’, as an agent. Shouldn’t it have been registered and controlled as a financial intermediary?

What was the nature of the ‘profits’? Were the premiums charged to the insured customer (such as the defendant) loaded, or was Glen-rand effectively sharing commissions with BMW?

In effectively sheltering the ‘profits’ earned by BMW over time, no matter how short or long, and resending these out into the world as ‘divi-dends’, was Guardrisk involved in a form of fi-nancial manipulation frowned upon worldwide?

Were the purported dividends in truth dividends, whether under corporate or fiscal law?

Would SARS be happy with and could it success-fully attack an arrangement that sees taxable ‘profits’ (read ‘commission’) magically trans-formed into tax-free dividends?

Words & phrases: ‘may’ & ‘shall’

Compare these two provisions of the Estate Duty Act:

EDA s 15 Recovery of duty paid in certain cases 15. Any person who has disposed of property in re-

spect of which a liability for duty in accordance with [s 11(b)(ii)], thereafter arises, without having received full consideration therefor, may recover from the per-son to whom he has disposed of such property the amount of duty payable by him in respect thereof.

EDA s 20 Expenditure incurred by executor 20. Every executor who is required to incur any expen-

diture in respect of any property which falls under [s 3(2)(a) or (b)] or under [s 3(3)], shall be entitled to recover such expenditure from the person liable, in accordance with [s 11], for the duty payable in respect of such property.

Both provisions form part of the original text of the act and so were written at the same time, although not necessarily by the same person.

Are you one of those who believe that the words ‘may recover’ differ in any substantive way from the words ‘shall be entitled to recover’? Probably not, since you could interchange them in the two provi-sions without changing the underlying meaning. When I say ‘you may’, I am being permissive. When I say ‘you shall’, I am being prescriptive. But neither the phrase ‘you may recover’ nor the phrase ‘you shall be entitled to recover’ is prescrip-tive.

In order to be prescriptive, both provisions would have had to say ‘you shall recover’ or, in modern parlance, ‘you must recover’, thus creating a duty

under the law, which would have required elabora-tion by way of enforcement provisions and sanc-tions. People writing laws are careful about the duties they create, since the law is brought into disrepute when unenforceable duties or unsanc-tioned defaults abound. In any event, the matters dealt with here are hardly central to the imposition and collection of estate duty by the state.

Thus it is intellectually impermissible to draw any conclusion from the failure of these provisions to be prescriptive. They do not need to be prescrip-tive. In fact, they would be absurd if they were so. Thus they are not prescriptive. Get over it.

Are they then elective? Obviously, since they both create an entitlement, which you may choose either to enjoy or ignore. But you have no choice about the entitlement itself; it is yours. In both in-stances you are entitled to recover, you may re-cover.

Do you have to do anything to win this entitle-ment? No, it is laid down by law.

You can have no possible basis in law for equat-ing this entitlement to, say, an inheritance under a will, where you first enjoy a personal right against the executor, which itself has no patrimonial value, and acquire property only when you adiate, wheth-er explicitly or impliedly (see 80 TSH 2009).

Your rights under these provisions are immediate and are immediately exercisable against the tar-geted persons and no one else. You do not have a personal right against the state (Ok State, I am going to take what you offer me!) which then somehow becomes a right against the targeted persons (Ok guys, I’ve squared things with the State; now I’m coming for you!).

In short, what you enjoy under these provisions



is a form of property—a real right to a sum of mon-ey. Should you elect to ignore it, be prepared for the fiscal consequences attendant upon the aban-donment of a claim against another.

Why were different wordings used in these two provisions, and is there not a presumption that different words in statutes usually mean different things? In all there are three instances of the phrase ‘shall be entitled to’ in the act, and I would guess that the newfangled ‘may recover’ escaped

old-fashioned detection. There is no getting away from the fact that elegant variation does crop up in legislation.

The ninety usages of the word ‘may’ are far more interesting. Here are my guesses on what some of them either mean or signify:

must; pleonastic (‘may consider’ = ‘considers’); stock phrase (‘as the case may be’); will; power (‘may esti-mate’); might; right (‘may object’).

Artif icial persons—Estate Duty Act

The Estate Duty Act fails to define a ‘person’ or a ‘trust’.

For the definition of a ‘person’, you would there-fore have to go to the Interpretation Act, which con-tains a definition that is itself not exhaustive and so depends to an extent upon the ordinary meaning of the term.

I have no idea what is the ordinary meaning of the word ‘trust’, but the minimum requirements for the establishment of a trust under our law are set out, I believe, in the definition of the term in s 1 of the Trust Property Control Act.

The first reference to the word ‘trust’ in the act appears in s 3(5)(b)(ii), and is a reference to a ‘trust deed’ and so is neutral and innocuous.

The next few hits occur in the controversial s 4(q), more commonly expressed in polite circles as ‘paragraph (q) of s 4’:

EDA s 4(q) (q) so much of the value of any property included in

the estate which has not been allowed as a de-duction under the foregoing provisions of this sec-tion, as accrues to the surviving spouse of the de-ceased: Provided that—

(i) the deduction allowable under the provisions of this paragraph shall be reduced by so much of any amount as the surviving spouse is required in terms of the will of the deceased to dispose of to any other person or trust;

(ii) no deduction shall be allowed under the provi-sions of this paragraph in respect of any prop-erty which accrues to a trust established by the deceased for the benefit of the surviving spouse, if the trustee of such trust has a discre-tion to allocate such property or any income therefrom to any person other than the surviv-ing spouse.

This is sloppy drafting from 1985 and 1987. Al-though the distinction is seen very clearly—that a trust is not a person (‘to any other person or trust’)—you cannot dispose of anything to a trust, nor can anything accrue to a trust. The disposal or accrual has to be made in favour either of the trus-tees in their fiduciary capacity or the beneficiaries.

I have previously analyzed this provision (see 68 TSH 2008), taking the view that it deals exclusively with an ordinary trust (that is, not a bewind) under which the surviving spouse enjoys a lifetime inter-est in the income, while a so-called gift over on his

or her death is allowed (there are termination bene-ficiaries other than the surviving spouse).

On this basis, the disposal or accrual has to be in favour of the trustees.

And here is the final hit:

EDA s 12B Remedies of Commissioner against agent or trus-

tee 12B. The Commissioner shall have the same remedies

against all property of any kind vested in or under the control or management of any agent or trustee as the Commissioner would have against the property of any person liable to pay any duty or interest and in such a full and ample manner.

There is nothing wrong with this provision, which very properly conjures with a trustee, as opposed to a trust.

Next is a provision not even mentioning a trust that I have misunderstood for years:

EDA s 5(3) (3) Where for the purposes of subsection (1) any calcu-

lation is required to be made over the expectation of life of any person, such calculation shall, in the case of a person who is not a natural person, be made over a period of fifty years.

I have always taken this as meaning that when the ‘life-expectancy’ of a trust is to be determined, the period to be used is fifty years—but a trust is not ‘a person who is not a natural person’, since it is not deemed to be a person by the Estate Duty Act and is not a person under the Interpretation Act.

Yet the period to be used is or, better, could be fifty years, thanks to the following provision:

EDA s 5(1)(b), third proviso Provided further that if upon the cessation of the inter-

est held by the deceased it is not possible to ascertain until some future date the person or some or all of the persons who will become entitled to the right of enjoy-ment of the property, the value shall be determined by capitalizing at twelve per cent over a period of fifty years the annual value of the right of enjoyment of the property in which such interest was held, unless the Commissioner and the executor agree that, having re-gard to the circumstances of the case, it would be rea-sonable to adopt a lesser period than fifty years, in which event such lesser period, as agreed, may be adopted accordingly;



Micro business & provisional tax

A registered micro business pays the turnover tax on its taxable turnover (s 48A of the Income Tax Act). On its taxable turnover, it pays two interim payments during each year, which are not to be confused with provisional tax payments, even though those are also payable twice a year.

How does a registered micro business escape normal tax? Its business income (excluding, for individuals, investment income and remuneration) is exempt (s 10(1)(zJ)).

What stops a registered micro business from be-ing a provisional taxpayer?

A controversial but possibly correct reason is that a person not liable at all to normal tax cannot be caught by the provisional tax system. Yet, since a registered micro business might be so liable, on account of earning non-business income or (indi-viduals only) investment income or remuneration, this is an inadequate approach to the problem.

How about exclusion from the definition of a ‘provisional taxpayer’ (para 1 of the Second Schedule to the act)?

A non-company deriving ‘income’ other than re-muneration or a taxable allowance is a para (a) ‘provisional taxpayer’. Since the term ‘income’ is almost certainly used here in its defined sense, the business income of a registered micro business cannot make a non-company a provisional tax-payer.

But all companies comprise para (b) ‘provisional taxpayers’. How, then, does a corporate registered micro business escape inclusion from the provi-sional tax system?

I do not know, although its exempt business in-come cannot form part of its taxable income and so cannot render it liable to make provisional tax pay-ments. Unless complete freedom from liability for normal tax excludes a person from the provisional tax system, such a company would have to submit nil returns under that system.

In any event, since the turnover tax is not an all-in tax, a registered micro business might derive taxable income rendering the person both a provi-sional tax payer and an interim-payments payer.

Expedition to uncover source of lump‐sum retirement fund benefits

Get hold of a version of the Income Tax Act before the incompetent legal crew at the National Treas-ury started to create havoc in their efforts to change the taxation of retirement fund lump-sum benefits.

How do I do that? Check para (e) of the definition of the term ‘gross

income’ in s 1, whose function is to include in gross income the taxable portion of lump-sum retirement fund benefits. If it is longer than a dozen lines, you have a sufficiently old act. Even more significantly, it includes the following faux proviso:

Provided that the provisions of [s 9(1)(g)] shall mutatis mutandis apply in the case of any amount determined as aforesaid;

Find s 9(1)(g). There you will see that s 9(1)(g)(ii) lays down a ‘two in ten rule’ governing the inclusion and apportionment of an employment-related pen-sion or annuity earned globally. The faux proviso, a sloppy piece of drafting if ever there was one, is telling you to apply the same rule to a lump-sum retirement fund benefit caught by para (e).

Now get hold of the latest version of the act. Paragraph (e) has slimmed down to less than two lines, and the faux proviso has disappeared. But s 9(1)(g)(ii) remains undisturbed.

Problem: where is the source rule governing re-tirement fund lump-sum benefits?

Either by searching the entire act for the string ‘(1) (g)’ or by going straight to the ‘charging provi-sion’ of the Second Schedule to the act, the link with para (e), which incorporates the Schedule in the act by reference, you will discover para 2(1) of the Second Schedule, which opens with these

words:

2. (1) Subject to the provisions of section 9(1)(g) and paragraphs 2A, 2B and 2C, the amount to be in-cluded in the gross income of any person in terms of paragraph (e) of the definition of ‘gross income’ in sec-tion 1 shall be….

Both forms of drafting are execrable but the more recent effort in my view fails to achieve coherence. Generations of pathetically incompetent draftsper-sons have created the presumption that the words ‘subject to’ mean that a hierarchy of application is being laid down, usually entirely unnecessarily, since legislation is meant to be read as a whole, and there are rules governing the supremacy of detailed provisions over general. Yet this one time there is no hierarchy in the sense that I must apply s 9(1)(g) before I apply para 2(1).

What the little shit who wrote this is telling you and me, rather, is the following:

Hey Man! I’m cool. When I get outta here my CV is going to wow the entire business community. I am a made man, in fact, I am the man. As for your little mat-ter, check out the history of these provisions before my buddies and I cocked everything up. Realize that, with-out interpretative surgery, the shoddy work we have been doing for about three years isn’t going to add up to a row of beans. Didn’t you notice how we had to amend every amendment? Take it that the words ‘mu-tatis mutandis’ must be read into my ‘subject to’ cop out. There! You are no worse off than before. Perhaps, though, you might need a judge to sign off on the thing, sort of. Don’t blame me. We actually write this crap in committee, and they pay us peanuts.

Feature Supplement to 83 Tax Shock Horror 2010

Cases

February 2009

Winners & Losers In That Other Beautiful Game

Current & Past Case Reports

by Julian Ware © 2010 J Ware ([email protected])

Loss incurred on disposal of shares— capital v revenue Anglovaal Mining Ltd v CSARS

Supreme Court of Appeal (2009)—71 SATC 293 (judgment delivered by Streicher JA; Mthiyane JA, Hurt AJA, Leach AJA & Bosielo AJA concurring): Here’s a lovely judgment to stick in the Commissioner’s eye. In a unani-mous decision, the court held that a loss incurred on the disposal of shares that were held by a taxpayer with the intention of disposing them at a profit was a tax deductible expense. Zealously brandish this judgment in front of the Commissioner’s henchmen whenever the opportunity avails itself. May this action annoy them more than the outcome of the taxpayer-cherished Drakensburg Garden Hotel’s judgment!

Appointment of agent— validity of a credit reversal Pestana v Nedbank Ltd

Witwatersrand Local Division (2007)—71 SATC 1 (judgment delivered by Schwartzman J; Goldstein J & Tshiqi J concurring): When an amount has been lawfully and unconditionally credited to a customer’s bank account it cannot be unilaterally reversed by a bank. Even under the auspices of a ‘s 99’ order, SARS’ ‘long arm’ is curtailed. On appeal, the SCA confirmed this judgment (2009 TSH 77).

Withholding tax— validity of directive notice COT & Another v Process Automated (Pty) Ltd

Supreme Court of Swaziland (2007)—71 SATC 9 (judgment delivered by Steyn JA; Banda CJ & Zietsman JA concurring): A legal notice, empowering the Commissioner of Taxes in Swaziland to issue a directive to any per-son to withhold taxes when he or she is of the opinion that a tax may not be recoverable, was held to be ultra vires the authorization of a tax ena-bling act. The directive, issued under the contested notice, dealt with the withholding of taxes linked to Swazi-resident contractors.

Supply of entertainment— VAT input credit claim CIR v Namsov Fishing Enterprises (Pty) Ltd

Supreme Court of Namibia (2008)—71 SATC 16 (judgment delivered by Strydom AJA; Maritz JA & Mtambanengwe AJA concurring): Under the Na-mibian Value-Added Tax Act, the supply of food and beverages consti-tutes entertainment. Vendors may not deduct VAT Input tax on goods or services acquired by them for the purposes of entertainment unless they are supplied in the ordinary course of an entertainment business. While the provision of rations comprising food and beverages to fishermen out at sea falls within the definition of ‘entertainment’, it cannot be said that the catching and marketing of fish (food) by a fishing company is an en-tertainment business. The taxpayer was denied VAT input taxes relating to rations supplied to its crew members.

Double exemption upon liq-uidation— STC Taxpayer v SARS

ITC 1834 (Pretoria Tax Court) (2008)—71 SATC 24 (judgment delivered by Murphy J): This complex case turns upon the question whether an STC exemption under s 64B(5)(c) (as it then stood) may be claimed upon the same ‘profits of a capital nature’ by a subsidiary and its holding company upon their successive liquidations. Dismissing the appeal, the court took a general exemption as being narrowed by a specific provision. Such an interpretation, said the court, serves a dual purpose. It prevents double taxation as well as double taxpayer-advantage. The taxpayer has appar-ently appealed against the judgment.

t s h


Coming in March…

Presenters: Costa Divaris & Michael Stein

Employer's monthly & annual PAYE, UIF & SDL obligations

A provisional taxpayer’s rights

Basic principles of Personal Tax

Vat inputs & outputs

A half-day seminar getting down to the legal basics of the monthly and annual payroll chores of the dili-

gent employer. The submission of monthly returns is a separate

obligation from the duty to pay. What exactly does it mean to make ‘payment’ to

SARS? How do PAYE, UIF and SDL differ? What is the significance of the ‘tax tables’ and the

SARS ‘Guide’. Why are tax codes important? What records and other returns are required?

How practical and legal are the requirements gov-erning the issue of tax certificates to employees?

What are the rules for dealing with mistakes, overd-eductions and underdeductions?

Although aimed at beginners, this seminar deals

comprehensively with the underlying law.

The notes-–actually a textbook—cover the entire subject, at every level, and you get a Law Lookup

containing the full text of the actual legislation, fully up to date and extensively annotated.

This half-day seminar covers the separate issues of

the forms required to be submitted and the payments to be made to SARS under the provisional tax system in great detail, focusing on the precise requirements of the law, the sanctions that may be imposed and, above all, the provisional taxpayer’s remedies. SARS

is no great respecter of the law; nor are SARS offi-cials well trained. Thus it is essential for taxpayers jealously to protect and exploit their rights. Indeed, both SARS and experienced tax practitioners labour under some very serious and costly misconceptions

about the sanctions that may be applied to provi-sional tax estimates and payments. These issues will

be examined in detail. Although aimed at beginners, this seminar deals

comprehensively with the underlying law. The notes-–actually a textbook—cover the entire subject, at every level, and you get a Law Lookup

containing the full text of the actual legislation, fully up to date and extensively annotated.

This half-day seminar breaks new ground, and not only for Bsp Seminars. Very few people are privi-

leged to understand how our increasingly complex tax system really works. How, exactly, does the

‘normal tax’ break down into what we call ‘income tax’ and ‘capital gains tax’? Where does the distinc-tion really lie? How do ancient tax principles fit into a

taxing statute that has changed beyond recogni-tion—and massively for the worse? How do we cur-rently draw the line between onshore and offshore

activities? Are there real opportunities for saving tax offshore? Is anyone enforcing the law on married couples? What, in fact, is a ‘spouse’ for tax pur-

poses? To what extent may an individual resort to the use of companies, close corporations or trusts?

And what is the truth about deductions and other reliefs available to individuals?

Although aimed at beginners, this seminar deals comprehensively with the underlying law.

Hardly anyone is fully aware what an incredibly

complex process has to be followed before even R1 of input tax may be claimed. The requirements for a valid tax invoice are bad enough, but the demands

made by the Vat law go very much further. If there is a single purchasing department in the

entire country truly capable of dealing with this bur-den it would represent a remarkable achievement.

On the output side, fundamental misunderstandings exist, across the entire economy, about what exactly

falls in and what falls outside the Vat system and how to make the call.

And, with both inputs and outputs, the many rules covering special situations are usually so counter-intuitive that they are impossible to internalize. You have to be aware that they exist—and then be able

to look up exactly how they are to be treated. Although aimed at beginners, this seminar deals

comprehensively with the underlying law. The notes—actually a textbook—cover the subject at

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amendments to the Value-Added Tax Act made since 2003, fully up to date and annotated.


Briefing

February 2010 Basic amount—legislative confusion

by Michael Stein © 2009 M L Stein ([email protected])

We have all lived through the extraordinary bun-gling that characterized SARS’s desperate scramble for funds as it messed around with the rules for year-end provisional tax estimates.

First, it required taxpayers to make an estimate of taxable income for provisional tax of no less than 80% of the actual taxable income as finally as-sessed for the year of assessment or suffer serious fiscal sanctions. This move aroused the ire of pro-visional taxpayers and even the long-suffering but usually stoical accounting profession.

Then came the introduction a two-tier system. Taxpayers with taxable incomes exceeding R1 million remained saddled with the 80% rule, while those with smaller taxable incomes could once again rely upon their ‘basic amounts’ in mak-ing their estimates or else make an estimate of at least 90% of their actual taxable income, should this amount be less than the basic amount.

The basic amount thus regained its importance for the year-end estimate made by taxpayers with taxable incomes not exceeding R1 million. It also remained the lower limit allowed to all provisional taxpayers for the first estimate for the year of as-sessment.

Basic amount The definition of the term ‘basic amount’ in para 19(1)(d) of the Fourth Schedule to the Income Tax Act was amended by the Taxation Laws Amendment Act 18 of 2009 with effect from as from 1 September 2009.

For estimates made by a non-corporate provi-sional taxpayer, it is the taxpayer’s taxable in-come as assessed by the Commissioner for the latest preceding year of assessment in relation to the estimate, less taxable capital gains and qualifying lump-sum retirement fund benefits in-cluded in taxable income.

For estimates made by a corporate provisional taxpayer, it is the taxpayer’s taxable income as assessed by the Commissioner for the latest preceding year of assessment, less taxable capital gains.

Then comes the shocker! A proviso to para 19(1)(d) states that, if an estimate must be made for a pe-riod ending more than one year after the end of the

latest preceding year of assessment in relation to the estimate, the basic amount must be increased by an amount equal to 8% per year of that amount—from the end of the preceding year to the end of the year of assessment for which the esti-mate is made.

The ‘latest preceding year of assessment’ in rela-tion to an estimate is defined in para 19(1)(e) as the latest year of assessment preceding the year of assessment for which the estimate is made and for which a notice of assessment relevant to the esti-mate has been issued by the Commissioner no fewer than sixty days before the date on which the estimate is submitted to the Commissioner.

Example Say the latest preceding year of assessment is the year ended 28 February 2009, and the current es-timate is the first estimate for the year ending 28 February 2011, that is, the estimate to be made by the end of August 2010. Since more than one year will have elapsed between 28 February 2009 and the end of the current year of assessment, that is, 28 February 2011, the basic amount must be increased by 8% a year for the two years from 1 March 2009 to 28 February 2011. The escalation is a whopping 16% of the taxable income for the year ended 28 February 2009.

In fact, the minimum escalation provided for is 16% and can never be a mere 8%. Should the lat-est preceding year of assessment lie only one year back, no escalation whatsoever applies. Escalation kicks in only if the current year of assessment ends more than one year after the end of the latest pre-ceding year of assessment, when the rate of esca-lation is effectively 16%.

Overlooked proviso Easily overlooked by provisional taxpayers—and probably overlooked by the Treasury when it amended the rules governing the basic amount—is the proviso to para 19(1)(e).

When the Commissioner has for an estimate re-quired to be made by a provisional taxpayer issued a return for the payment of provisional tax (the IRP 6 form) and has indicated the taxpayer’s tax-able income for the latest preceding year of as-sessment on the form, this provision allows, at the

February 2010


taxpayer’s option, that same taxable income to be deemed to be the basic amount applicable to the estimate.

In practice the IRP 6 form indicates an amount that it calls the taxable income for the relevant ear-lier year of assessment. It then adds 8% or what-ever other percentage-escalation is required. What the proviso to para 19(1)(e) allows is the use of the taxable income indicated on the IRP 6 form as the basic amount.

So, if you choose to treat the printed taxable in-come as the basic amount instead of the true basic

amount, do you ignore the percentage-escalation? It may be argued that the proviso, by deeming an

amount to be the basic amount, prevails over the general rule in para 19(1)(d) for the determination of the basic amount, providing for the percentage-escalation. It is unlikely that this result was in-tended but it may well be the effect of the law.

The opposing argument is that, if the taxpayer chooses to treat the printed amount of taxable in-come as the basic amount, it must still be esca-lated under the proviso to para 19(1)(d).

tsh

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Davey’s Locker

February 2010 Deferred compensation revisited Are threatened developments fair or wise?

by Tony Davey © 2009 A H Davey ([email protected] www.tonydavey.com)

Lobbyists for the Long-Term Insurance industry should be cognizant of the Budget Review published this month by the Na-tional Treasury. This states that salary-structuring arrangements, including what is known in insur-ance jargon as ‘deferred com-pensation’, will be reviewed from the perspectives of both em-ployers and employees.

In essence, a deferred-compensation plan is a contrac-tual arrangement, funded by an insurance policy, between an employer and employee to grant the employee a gratuity at re-tirement or, upon earlier death, the employee’s heirs.

Employee tax proposal Under s 10(1)(x) of the Income Tax Act a R30 000 tax exemption is allowed on a lump-sum award granted by an employer to an employee who has attained the age of 55, upon retirement or other termination-of-service event.

Such an award (which may in-clude pay in lieu of leave) by an employer, of which the first R30 000 is tax free, is currently distinct from any benefit payable by a retirement fund upon re-tirement, where a lump-sum benefit qualifies for a R300 000 exemption. In other words, a combined tax-free total of R330 000 is currently on offer.

It is now proposed that the de-ferred-compensation award be merged with the retirement fund tax dispensation, on an inclu-sive, aggregated basis, with the effect that a deferred-compensation award will reduce the balance of a retirement fund tax-free benefit.

Prima facie, it could be argued that employees of smaller sized firms who are not members of an employer-sponsored retirement fund registered under the Pen-sion Funds Act will benefit from a deferred-compensation plan of R300 000 instead of R30 000 if such a proposal becomes law. On the other hand, tax relief might be limited to the employer.

Employer tax proposal It seems that the Treasury is either: Reviewing s 11(w). This per-

mits an employer to deduct premiums paid under an in-surance policy funding a de-ferred-compensation ar-rangement. This is perhaps seen as a tax-deferral ar-rangement, since the fiscus recoups tax only many years later when the employee re-ceives the award of the insur-ance policy proceeds.

Seeking to subject the em-ployee to tax on each pre-mium.

February 2010

Feature Supplement to 83Tax Shock Horror 2010

In my view, the fairness of this rationale is questionable, in that the same could be said of an employer’s deductions of contri-butions to a pension or provident fund.

Conclusion It is conceded that retirement funds are formally registered with the Registrar of Pension Funds and subject to legal and governance requirements under the auspices of the Financial

Services Board. Yet the reality faced by smaller firms providing much-needed employment is that they cannot afford to fund the legal, compliance and ad-ministrative costs of retirement funds for employees. If anything, less formal arrangements such as deferred compensation, albeit adhering to certain prescribed criteria, should be encouraged.

t s h

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February 2010

Evidence Corner—evidence could make a welcome change to tax cases

Hearsay evidence: Why can’t I tell the court what Johnny told me?

by Andrew Paizes © 2010 A Paizes ([email protected])

One of the oldest and most es-tablished rules of the English common law, upon which much of our law of evidence rests, is that hearsay evidence is, gener-ally, inadmissible unless it can be saved by one or other of the rec-ognized exceptions, which have evolved over a long period of time. Thus, in a murder trial, if a witness W testifies that ‘Johnny told me that he saw that man [pointing at the accused X] shoot and kill Y’, this evidence will not, as a rule, be received against X.

Why not? The short answer is that it is Johnny, not W, who is the real witness to the event in question. If Johnny were to testify himself, he would do so under oath. He would have to give his account in a formal way, as a series of answers to questions put to him in a structured and systematic way, so that his story unfolds sequentially and logically, with an introduction establishing how and why he was in a position to describe what he saw. This formal process provides a con-textual setting for his assertion that he saw X shoot and kill Y, a context that provides the accused and his legal representative an opportunity to examine his de-meanour and whether he is tell-ing the truth or conveying accu-rately the events he describes.

Then Johnny would be subject to cross-examination, described by a leading writer as the single most important engine for deter-

mining the truth in the adversarial trial process. It is an engine that allows the defence to probe ar-eas of perceived or potential weakness, to extract facts not previously disclosed and to cast doubt on what has already been said.

Now it is true that, if Johnny does not testify, and that, if W were allowed to tell the court what Johnny told him, W would himself be subjected to these stringent procedural devices. But of what use would they be to X or his adviser? Very little. Cross-examining W would not usually reveal much in respect of whether Johnny was telling the truth, had a reason to lie, was mistaken in his identification or any other material fact going to the reliability of his evidence.

In short, the denial to the ac-cused of his right—now constitu-tionally entrenched—to challenge the evidence, may be greatly prejudicial to him and may lead to a violation of his (also constitu-tionally recognized) right to a fair trial.

In jury trials, the dangers of re-liance upon such evidence are even greater: it is unrealistic to expect jurors to be able to identify all the possible sources of danger and prejudice and to know what to do about them in assessing the probative value of the evidence before them.

Hearsay evidence, then, is generally inadmissible because it

is dangerous and potentially highly prejudicial to the other side—whether in a civil or (even more so) a criminal trial. The rea-son is that it is not subjected to the wide range of procedural courtroom devices for getting to the truth. Of these, cross-examination is but one—albeit the most effective. One has to imagine what questions would have been asked of Johnny if he found himself in the hands of a highly skilled and experienced exponent of the art of cross-examination. At least four aspects of Johnny’s testimonial capacity would come under the closest scrutiny:

His sincerity: was Johnny tell-ing the truth?

His perceptive capacity: was he honestly mistaken in his assertion?

His memory: how long after the event did he make the statement, and is it possible that his memory is in any way defective?

His narrative ability: did what he told W correspond exactly with what he intended to con-vey to him?

But Johnny is not in court. He cannot be cross-examined, and none of these areas of potential weakness can be probed by X’s counsel or even properly as-sessed. Johnny is protected against the oath and its binding

February 2010


force. His demeanour is never open to examination, and his story remains brief, lacking in contextual depth and colour, and informally presented.

The prejudice for X is enor-mous, and in such circumstances the evidence would clearly be excluded.

But matters are not always so simple. What if you were not dealing with a criminal trial, the out-of-court declarant was un-available because he had died, the evidence was undoubtedly

reliable, the declarant shown to have been in the best position to describe what he asserted, and the prejudice to the other side shown to be very small, in that cross-examination would have been of little benefit to him?

In such circumstances the ex-clusion of the hearsay evidence would not serve the interests of justice. The challenge, then, is to find a way to accommodate both these situations within a single, coherent framework that would allow our courts to work flexibly

with the underlying principles. In what follows I will examine

how best to define hearsay evi-dence; consider the approach of the common law, which held sway for so long in this area, and look at the statutory reforms ef-fected by the Law of Evidence Amendment Act 45 of 1988, which revolutionized the ap-proach to hearsay in South Af-rica.

t s h

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February 2010

Creating f ile‐l ists

This article examines an interesting computing problem: How do you create a list of files in a folder?

You could take a couple of screen prints of Win-dows Explorer (ALT + print screen) but they will not be searchable. Or you could select each filename one at a time (select filename, F2, CTRL + C and CTRL + V in Word). Try doing that with Costa’s Tax Shock Horror Database and you’ll be at it for a month of Sundays.

Strangely, Windows does not offer a standard feature for creating file lists, so the solution is not obvious. You could try to find a utility on the web to perform the task, but it’s far more fun to do it your-self. For that you must go back to the pre-Windows days and use MS-DOS.

First, bring up the DOS window: WIN + R, type

cmd in the Open: block and hit enter. If the Run command has been disabled for security reasons, you will have to go the long way round: Start / Pro-grams / Accessories / Command Prompt. To acti-vate it without the mouse in Vista: WIN, P, right ar-row (to expand Accessories), press C twice (Calcu-lator, Command Prompt), enter. If the first-letter method of navigating the Start menu does not work (that is, ‘P’ for Programs and ‘C’ for Command Prompt) you can navigate with the up and right arrow keys.

The procedure outlined below will create a text file (filelist.txt) that will list the contents of your se-lected folder. Three options are shown below. Which of these you should use depends on where you want to create your list of files, and whether the folder you want to list is on a different drive.

Option 1: Create l ist on default drive in target folder

In this option there is a folder called Tax, Shock, Horror within My Documents on the C drive in which the user stores monthly copies of TSH. The file list will be created in the Tax, Shock, Horror folder. The first step is to get the PC to point to the target folder where you will create your list. The change directory (cd) command is used for this purpose. Note the use of double inverted commas (not single) and the backslash (\), not forward slash (/).

The next step is to list the directory (folder) con-tents and output it to a text file named ‘filelist.txt’. You can give it any name, for example, tshfiles.txt, as long as it ends with the extension ‘.txt’.

The terms /b and /s are known as switches. The /b switch instructs the PC to use ‘bare format’—in

other words, it leaves out surplus information about the file such as time and date of creation and file size. The /s switch ensures that the contents of subdirectories (subfolders) are also listed. There are many other switches that can be inserted to perform other tasks, but more on that later. A switch is preceded by a forward slash (/), not a backslash.

The exit command will close the Command Prompt window.

Once you have completed the steps, open Win-dows Explorer (WIN + E), open the target folder (in this case Tax, Shock, Horror), and look for a file called filelist. It will contain your list of files. The file will open in Notepad, from where you can copy it to another Windows application.

February 2010


Option 1

Displayed text Text to be entered, then press Enter C:\????\????>_ Note: The actual displayed text will depend on the user’s default path. Examples: C:\Users\Duncan>_ C:\Documents and Settings\Duncan>_.

cd “C:\My Documents\Tax, Shock, Horror”

C:\My Documents\Tax, Shock, Horror>_ dir /b /s > filelist.txt C:\My Documents\Tax, Shock, Horror>_ exit

Option 2: Create l ist on another drive in target folder on that drive

This option enables you to create a list of files on another drive (such as a network drive or external hard drive). In order to write the file to the other drive, the first step is to make that drive your de-

fault drive. The instructions below assume that your external drive is on the F drive. It is also as-sumed that the target folder (Tax, Shock, Horror) is within the My Documents folder on the F drive.

Option 2

Displayed text Text to be entered, then press Enter *C:\????\????>_ F: F:\ >_ cd “F:\My Documents\Tax, Shock, Horror” F:\My Documents\Tax, Shock, Horror>_ dir /b /s > filelist.txt F:\My Documents\Tax, Shock, Horror>_ Exit

Option 3: Create l ist on default drive of a folder on another drive

In this example the target folder is on an external hard drive (F) but the text file is written to a folder

named Indexes within My Documents on the C drive.

Option 3

Displayed text Text to be entered, then press Enter C:\Users\????>_ cd “C:\My Documents\Indexes” C:\My Documents\Indexes>_ dir /b /s “F:\My Documents\Tax, Shock, Horror” >

filelist.txt C:\My Documents\Indexes>_ Exit

Switches

Apart from /b and /s discussed above, there are many other switches you can use to sort or restrict your data. Some of them are listed below.

In order to obtain a list of all switches: dir /? To

output that list to a text file: dir /? > filelist.txt You might want to first change the default directory so that the list will be created in the folder of your choice by using the cd command.

Switches

/ah Displays hidden files /ad Displays folders only /ON Sort by name /OS Sort by size (ascending) /OE Sort by extension /OE Sort by date /OG Sort by parent folder /OS Sort by attribute dir *.pdf Lists all files with the .pdf extension dir b*.* Returns all files whose name begins with b.