experts bemoan uncertainty in backdating tax law 
21 August 2008

Loud objections were raised about the effective date of significant tax amendments being made retrospective. Tax experts complained that this severely undermined certainty and tax planning.  Big business deals were held up or retrospectively encumbered with enormous tax liabilities because of the backdating of tax laws, tax practitioners from Webber Wentzel, Bravura and PricewaterhouseCoopers submitted to Parliament’s finance committee conducting hearings on the Draft Revenue Laws Amendment Bill.

The bill gives effect to tax proposals announced in the budget such as conversion of secondary tax on companies to a withholding tax on dividends and the introduction of a presumptive turnover tax for small businesses.  Many of the tax changes will apply to years of assessment ending on or after January 1 next year, which will render them retrospective.

Treasury chief director of tax policy Keith Engel said this instability in tax legislation was a worldwide phenomenon, and occurred in SA so that tax changes were aligned with the introduction of new tax rates from the start of the fiscal year.  Engel agreed on the need for a general policy to be formulated on the issue. “It is a very valid issue which we need to discuss.”   Tax professionals acknowledged the need for retrospective tax legislation to attack tax-avoidance schemes or address anomalies. But the caveat was that it had to come with certainty and timeliness, Bravura’s James Aitchison said.

PricewaterhouseCoopers tax director David Lermer blamed an excess of retrospective tax laws on “the speed of light” at which they were processed.  Webber Wentzel’s Ed Liptak said retrospective tax laws were placing enormous strain on businesses, which needed certainty and predictability. The worst-case scenario was when laws were made retrospective by several years, adding huge sums in tax liabilities to what at the time were legitimate business transactions.   Liptak said that several countries had constitutional provisions limiting the scope of retrospective tax legislation or prohibiting it. “Taxpayers’ obligation to pay tax imposes a reciprocal obligation on fiscus that the law be fair and reasonable,” he said.

Linda Ensor, www.businessday.co.za