The government will this year usher in a new regulatory framework for the tax advisory industry, holding practitioners accountable for the advice they give taxpayers and, at the same time, ridding the industry of rogue practitioners.
The framework calls for the registration of practitioners with a regulatory body before July this year, with the threat of criminal sanctions for those who fail to do so and who continue to submit tax returns or provide tax advice for a fee.
With the promulgation of the Tax Administration Amendment Act at the end of last year, all tax practitioners are obliged to register as members of a professional body such as the Independent Regulatory Board of Auditors, the South African Legal Practice Council, the Institute for Tax Practitioners (Sait), the Institute for Chartered Accountants (Saica) or the Institute of Professional Accountants (Saipa).
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The stated intention behind the new regulatory framework is to hold tax practitioners accountable for the advice they give taxpayers, but unofficially there is a suspicion among the tax fraternity that the framework is aimed at keeping more aggressive practitioners — involved in highly sophisticated tax-avoidance schemes — in check.
Finance Minister Pravin Gordhan criticised the tax advisory industry in his 2012 budget speech, saying that among the country’s 34,000 tax advisers, 18,000 income tax returns were outstanding in their personal capacity and that they owed R260m in outstanding taxes.
He said: "If that is their attitude to their own tax compliance, one shudders to think what advice they are giving to their clients."
It is estimated that 55% of the total number of tax technicians and practitioners are not registered with a professional regulatory body.
Etienne Retief, chairman of the national tax committee of Saipa, said the South African Revenue Service (SARS) had stated in the past that it wanted an "enhanced relationship" with tax practitioners. It would like to give tax practitioners the advantage of a smooth working relationship, but it also wanted the ability to take action once the relationship broke down.
The intention is not to rid the industry of unregistered tax practitioners, but to ensure that everybody practising in the industry is treated alike, he said.
Ernie Lai King, tax executive at law firm Edward Nathan Sonnenbergs, said on Thursday the regulatory framework had been a long time coming.
"It holds serious consequences for tax practitioners as, in severe cases, they can be struck from the register if they give inappropriate advice to taxpayers."
It is a mechanism given to SARS to ensure tax practitioners toe the line, Mr Lai King said.
"SARS will flex its muscles under the Tax Administration Amendment Act, which allows it to lodge complaints against rogue tax practitioners," Sait CEO Stiaan Klue said.
The act allows a senior official to lodge a complaint with a controlling body when there is an unreasonable delay in the finalisation of matters before SARS; when the practitioner has been grossly negligent with regard to any work they have performed; and when they have directly or indirectly attempted to influence anyone employed by SARS.
An individual taxpayer also has the right to complain about the conduct of a practitioner, which can lead to him being fined, suspended or permanently struck from the register, depending on the gravity of the complaint. If a taxpayer receives a huge fine after acting on the wrong advice, the act for the first time provides some recourse for the taxpayer. SARS has the power to levy penalties of up to 200% if a taxpayer has been noncompliant, yet under the Income Tax Act the fact that the taxpayer acted on the advice of a professional person was never considered by SARS.
"Under the Tax Administration Amendment Act, taxpayers will be able to reduce their penalties if they can prove that they acted on the advice of their tax practitioner," Mr Klue said.
"Many large, listed companies get advice on their tax positions from practitioners and will normally keep the written opinions, proving that they were not wilfully noncompliant."
Mr Klue said practitioners will have a window period until July 1 to register with a controlling body without having to write a national exam, which will become obligatory from 2014.
He said tax practitioners could become a member on the basis of their existing academic qualification, or they could apply for recognition of prior learning.
He expected that many of the controlling bodies would require a "competency assessment" for membership in cases where tax practitioners do not have formal university qualifications.