dc.contributor.advisor | Van der Zwan, P. | |
dc.contributor.author | Jansen van Rensburg, Johannes Petrus | |
dc.date.accessioned | 2017-08-22T13:26:56Z | |
dc.date.available | 2017-08-22T13:26:56Z | |
dc.date.issued | 2016 | |
dc.identifier.uri | http://hdl.handle.net/10394/25417 | |
dc.description | MCom (South African and International Taxation), North-West University, Potchefstroom Campus, 2017 | en_US |
dc.description.abstract | Complexities and uncertainty normally arise when the application of a provision in one Tax Act is dependent on a provision in another Tax Act. This is especially true when a person’s liability to register and account for VAT is dependent on his or her classification as an employee in receipt of “remuneration” as defined in paragraph 1 of the Fourth Schedule to the Income Tax Act (58 of 1962).
Uncertainty exists whether or not a non-executive director is liable to register and account for VAT. This is firstly due to the contentious nature of the non-executive director’s classification either as an employee or independent contractor and secondly the uncertainty if the non-executive director’s duties will constitute an “enterprise,” as defined in section 1(1) of the VAT Act.
Guidance is necessary in order to provide certainty to non-executive directors regarding their obligation to register and account for VAT.
The main objective of this study was to determine whether there may, in principle, be VAT and employee’s tax consequences on fees earned by non-executive directors and to suggest practical solutions for the identified uncertainties. The research method followed was normative, which is a form of legal research, specifically doctrinal. This was chosen because the object of such research is not just to gather information, but also to point out in which aspects the object of study may be improved and to investigate the possibilities for improvement.
Therefore the definition of a non-executive director and the characteristics that distinguish a non-executive director from an executive director were identified and explored. This evaluation, as well as an analysis of the requirements to be classified either as an independent contractor or employee, was crucial to determine the correct classification of the non-executive director. The impact of this classification on the non-executive director’s liability in terms of South Africa’s current VAT system to register and account for VAT was also considered and analysed. The liability of non-executive directors in New Zealand to register and levy GST was also analysed and discussed. The information obtained was used to establish how the interpretational problems and uncertainties that were identified during the research are dealt with in New Zealand. A final conclusion was formulated and practical solutions for the identified uncertainties were suggested after an in-depth reflection of each chapter’s research result. It was found that strong evidence exists to support the classification of a non-executive director as an independent contractor. Flowing from this finding it could be argued in theory that employees’ tax cannot be withheld from non-executive directors' fees and that non-executive directors may have to register and account for VAT should the value of the fees earned exceed R1 million over a twelve-month period.
In practice this finding places a heavy administrative burden on both SARS and the non-executive director, whilst no additional tax revenues are generated for the state from a VAT perspective. It is due to the fact that the output VAT charged by the non-executive director is cancelled out by the input VAT claim of the company for which the independent advisory services were rendered.
The practical solution with the same end result is to exclude the services of a director from the “enterprise” definition for VAT purposes. This practical solution is in line with New Zealand’s current practice and law.
With regards to normal income tax it was found that the current method of collecting income tax on non-executive directors’ fees (i.e. provisional tax) has the shortcoming that the tax is not collected as and when the fees are payable. It is, however, not recommended that a new type of withholding tax, similar to New Zealand’s "tax on schedular payments," should be implemented.
The most practical solution is to consider current mechanisms available. It is suggested that the “remuneration” definition, as per paragraph 1 of the Fourth Schedule to the Income Tax Act, should be amended to specifically include directors’ fees even if the director is classified as an independent contractor. This will ensure the timely collection of taxes. From a non-executive director’s point of view it is submitted that this proposed amendment will not have negative tax consequences. It is not anticipated that such persons will incur material business-related expenses which might be denied in terms of section 23(m) of the Income Tax Act, should National Treasury implement the proposed amendment. This is due to the fact that the biggest component of the independent advisory services rendered by non-executive directors is actually their own time spent. There is in any case no tax deduction available for a person’s own time spent in the production of their income | en_US |
dc.language.iso | en | en_US |
dc.publisher | North-West University (South Africa) , Potchefstroom Campus | en_US |
dc.subject | Activity | en_US |
dc.subject | Continuous | en_US |
dc.subject | Employees' tax | en_US |
dc.subject | Enterprise | en_US |
dc.subject | Independent contractor | en_US |
dc.subject | Non-executive director | en_US |
dc.subject | Regularly | en_US |
dc.subject | Remuneration | en_US |
dc.subject | Value-added tax | en_US |
dc.title | A critical analysis of a non-executive director's responsibility to register and account for VAT | en_US |
dc.type | Thesis | en_US |
dc.description.thesistype | Masters | en_US |
dc.contributor.researchID | 22582630 - Van der Zwan, Pieter (Supervisor) | |