Tax practitioners and their controlling bodies now held to a higher standard

Several new requirements have been introduced to further tighten the regulation of the tax profession and its controlling bodies. It aims to ensure that tax practitioners are properly qualified and that there is a mechanism to address misconduct.

Non-compliance in enforcing the rules may lead to the deregistration of a recognised controlling body (RCB) and non-compliance by tax practitioners may lead to deregistration for six months or removal from the South African Revenue Service (Sars) register of tax practitioners.

RCBs have expressed their concern that the new rules have been introduced by “stealth” rather than through the legislative process, as had been the case with the initial regulatory process in 2013. The Tax Administration Act was amended at the time to provide the regulatory framework.

New rules already in force

Adrian Modikwe, head of the legal and compliance unit of the South African Institute of Taxation (Sait), says RCBs and Sars have been consulting on the new rules since late last year. The new rules have been effective from 1 June and several system changes have been made to accommodate the new requirements.

Key among the changes is the focus on tax compliance, higher entry level qualifications, and a criminal clearance certificate for newcomers to the profession.

Sumaya Khaki, project director of tax at the South African Institute of Chartered Accountants, says there is uncertainty about the deregistration period for non-compliance. Sars issued a draft interpretation note and allowed time to comment until 1 July.

The interpretation note differs from the interpretation discussed during previous workshops with National Treasury. Khaki refers to examples in the note where the treatment of when a practitioner will be allowed back in the system differs, depending on whether the non-compliance was for six consecutive months, or six scattered months.

Testing for compliance

Sars now requires RCBs to test all their members once a year for compliance, compared to allowing the RCBs to decide on the sampling size.

“This is quite unique to SA, and it is quite unique to the profession as well because there is no similar ethical requirement in any other profession,” says Khaki.

Sars has taken a firm stance against non-compliance. “Sars’s view is that if the tax practitioner [in their personal capacity] is not compliant, how can they be a model representative to their clients,” says Sait CEO Keith Engel.

If a tax practitioner is engaged in a dispute with Sars regarding their tax matters, they will not be deregistered. However, if practitioners have conceded that they owe Sars money and do not pay, they will be in trouble, Engel said during a Sait webinar on ethics and tax compliance.

Qualification requirements

The new requirement for the minimum entry level into the profession is NQF Level 4 plus 10 years of experience.

Many tax practitioners gained entry with fewer years of experience. They may now have to obtain a NQF Level 5 qualification which only requires four years of work experience.

Faith Ngwenya, technical and standards executive at the South African Institute of Professional Accountants, says once a tax practitioner is registered with a controlling body and Sars they have “full access” to clients.

This despite the fact that the RCBs prescribe which tasks lower qualified practitioners are allowed to take on. RCBs can only address this when there is a complaint against a practitioner.

New entrants will now be required to take a two-hour test, based on eight modules of the Sars Readiness Programme. They must get a pass rate of 90%, but will be allowed to do the assessment three times.

Ngwenya has welcomed the readiness programme, saying there are many things a practitioner has to understand about the tax regime – not only from a legislative point of view, but also in terms of operational issues.

The Continuing Professional Development requirements have also been increased. Engel believes professionals have to keep up to date, particularly with changes in legislation.

If they don’t they may be exposed to malpractice suits if their advice is based on outdated law. Continued learning is a matter of self-preservation, he says.

Read: New landmark study for tax professionals

The RCBs are in the process of creating a central database where members who have been deregistered for non-compliance, misconduct or criminal prosecution will be published.