Income Tax Act to be rewritten
17 February 2009

The government has embarked on a huge project to rewrite the Income Tax Act. This is in line with plans for a new social security dispensation, which is expected next year.

“The Income Tax Act is nearly 50 years old. It has been amended and extended over the years to cover business transactions and developments that were unheard of when it was introduced. It is therefore to be expected that its flow may not be as logical as may be ideal, or that there may be inconsistencies in its language,” South African Revenue Service (SARS) spokesman Adrian Lackay said.

SARS and the treasury had been in discussions with the International Monetary Fund (IMF) with respect to the rewrite of the Act, said Lackay. The IMF had offered technical expertise to assist the rewrite, he said. But there would be a phased approach to rewriting the legislation.

As far back as the 1990s the government had proposed rewriting the Income Tax Act and a leading academic was briefed to lead the process. However, the process was postponed due to various complications. Finance Minister Trevor Manuel said in 2005 that a rewrite of the legislation was on the cards but the government was not in a position to say when it would be done.

Last week, the budget review announced the rewrite of the portion of the Income Tax Act dealing with employment income. Lackay said this part of the Act was chosen to assist the largest number of taxpayers, the ordinary people of SA.

Emil Brincker, a tax director at commercial law firm Cliffe Dekker Hofmeyr, said the government should be cautious about rewriting the act in its entirety. “Tax analysts and taxpayers are used to the terminology of the legislation. Further, case law has evolved for decades around the Act,” Brincker said. “The government needs to consider whether it is going to be modelling the law on other jurisdictions, such as that of Australia or New Zealand. This is what happened with SA’s Companies Act. The question needs to be asked whether SA wants to aspire to another country’s tax laws.”  Brincker said the tax laws should be rewritten only for administrative purposes.

Charles de Wet, a tax partner at PricewaterhouseCoopers, said it was understandable that the issue of employment income was on the agenda as the definition of “remuneration” ran through three different laws.  Rewriting the law was a complex job. “It needs to be carefully planned and thought through,” De Wet said. “It is also dangerous to get rid of precedent.”

The 2005 budget review announced that a Tax Administration Bill would be released to eradicate duplication of administrative provisions in various tax acts. Lackay said this had proved to be a more ambitious task than initially anticipated but an internal draft of the bill was at an advanced stage.

Sanchia Temkin,  www.businessday.co.za