A critical analysis of the fringe benefit taxation provisions with specific reference to the South African construction industry

Abstract

The structuring of salaries in order to derive the maximum tax benefit has become common practice in South Africa and in the international arena. This structuring is regarded as being acceptable as long as it is conducted within the ambit of the provisions of the Income Tax Act, 1962 (Act 58 of 1962) as amended. Over time numerous taxpayers have taken advantage of the situation and have either incorrectly applied the relevant provisions or have been highly aggressive in the implementation of schemes that could be regarded as tax evasion rather than tax avoidance. As a result the South African Revenue Service have spent considerable time drafting and implementing the Seventh Schedule to the Income Tax Act in a manner that has reduced the opportunities for most taxpayers to structure their salaries. These provisions have become embedded in practice, but as the economy grows and advances are made in the conducting of business, these provisions have not been maintained well enough for it to keep pace with international trends being applied by other Revenue authorities. It will, however, never be possible to implement a standard international framework which will govern all fringe benefits for all countries, as circumstances and business in different countries are fundamentally different. In comparison with those of New Zealand and Australia, South Africa has relatively effective fringe benefit taxation provisions. However, it is time that the South African Revenue Service benchmarks the provisions against practices applied by other Revenue authorities in order to improve its legislation in a manner that will support other strategic initiatives being undertaken in the country. AFRIKAANS : Salarisstrukturering, ten einde maksimum belastingvoordeel te bekom, is deesdae aan die orde van die dag in Suid-Afrika sowel as op internasionale gebied. Hierdie strukturering word as aanvaarbaar beskou solank dit binne die bepalings van die Suid-Afrikaanse Inkomstebelastingwet, 1962 (Wet no 58 van 1962), soos gewysig, geskied. Mettertyd het vele belastingbetalers hierdie medium egter misbruik deur die bepalings van die Wet verkeerdelik toe te pas. Aggressiewe interpretasie van die Wet het ook tot gevolg gehad dat die totstandkoming van belastingskemas meer tot belastingontduiking as belastingvoorkoming geneig het. Dit het veroorsaak dat die Suid-Afrikaanse Inkomstediens baie tyd geïnvesteer het in die opstel en toepassing van die Sewende Bylaag tot die Inkomstebelastingwet wat die geleentheid vir die strukturering van salarisse vir die meeste belastingbetalers wesenlik ingekort het. Alhoewel hierdie wetsbepalings in ons alledaagse besigheidspraktyke geïntegreer is, het dit nie met ekonomiese groei en besigheidsvooruitgang tred gehou nie. Om hierdie rede word dit ook nie beskou as mededingend te wees met internasionale neigings en gebruike van inkomstedienste wêreldwyd nie. Dit sal egter onmoontlik wees om 'n internasionale raamwerk daar te stel waarvolgens byvoordele wêreldwyd gereguleer kan word, aangesien die omstandighede en besigheidspraktyke wesenlik van land tot land verskil. In vergelyking met dié van Nieu-Seeland en Australië is die Suid-Afrikaanse wetsbepalings op byvoordele relatief effektief en doeltreffend. Die tyd het egter aangebreek dat die Suid-Afrikaanse Inkomstediens hierdie bepalings met dié van ander lande vergelyk en standaardiseer ten einde huidige wetgewing te verbeter en meer effektief te laat funksioneer, en ook om dit met die land se strategiese doelwitte in lyn te stel.