Effectiveness of legal framework for taxation
By Lejukole Noel Marle
After laying the general conceptual and specific legal framework, this part of the series critically assesses effectiveness of legal framework for taxation in South Sudan. Apart from observing the principle of legality and providing a favourable atmosphere for structural organisation, the framework establishing tax administration is hollow of the basic tenets.
Imposition of taxes by parliament: Notwithstanding absence of express constitutional provisions giving the mandate to impose taxes to the NLA, the tax legislation process conforms to the basic tenets propounded by Frans Vanistandael. Since the enactment of the Taxation Act in 2009, there have been subsequent amendments in 2011, 2012 and, recently, in 2016.
The Taxation Amendment Act, 2011 broadened the definition of business organizations to include large enterprises. This was, understandable, so, because taxation of Large Enterprises (LEs) (including the oil companies) was the preserve of the National Government of Sudan (in Khartoum) before independence.
The Taxation Amendment Act, 2012 broadened the tax base by introducing rental withholding tax, surtax on Personal Income Tax (PIT) and excise tax.
The Taxation Amendment Act, 2016 went a further step by increasing the rental withholding tax rate from 10 percent to 20 percent, introducing withholding tax on technical fees and removing all exemptions in non-tax legislations.
The NLA is at all times sought by the Executive when taxes or fees are raised or introduced. At no point in time did the President invoke his powers to impose temporary taxes or fees.
Establishment of a functional organisational structure:
Its inadequacies aside, the DoT is apparently organised. It is a hybrid from different organisational approaches namely: tax type, functional type and taxpayer type. There are two main taxpayer-type units, namely, Small and Medium Taxpayers’ Unit (SMTU) and Large Taxpayers’ Unit (LTU). The units are headed by Directors. Within the Units there are departments having roles of taxpayers’ service, audit and investigation.
Having a fused organisational structure is very important to improve operational results while increasing transparency and accountability.
Abuse of powers by the minister of finance
The powers given to the Minister of Finance to make rules and regulations for effective and efficient implementation of the tax legislation are often abused. A clear example is the Taxation Act-Supplemental Regulations, 2014. Regulation 1.56 introduces tax on after service benefits without regard to provisions of the Taxation Act, 2009 which gave a relief to the same. Therefore, the Minister usurped the tax legislative powers from the NLA.
Dysfunctional Tax Authority
The DoT is created using an archaic ministerial model. It does not enjoy any degree of autonomy from the Ministry of Finance. The recruitment and management of the human resource are in line with the Public service rules. The Director General of Taxation is an appointee of the Minister of Finance, whose appointment is not vetted by an oversight body like a board. The other tax officers in the Directorate are recruited and regulated using the public service standing orders. The scale of salaries of these officials is determined equally with the other government institutions by the Ministry of Public Service, Labour and Human Resource Development.
The DoT is not challenged to reach annual revenue targets with this approach. Corruption is bound to tear its head in such environment. Tax officers tasked with the responsibility of processing tax registration and conducting audit are prone to ask for bribes. The lax approach towards revenue-collecting machinery of the government has led to a dismal domestic revenue yield.
The current move is towards a revenue authority model with a semi-autonomous National Revenue Authority (NRA) having powers over management of financial and human resources. However, apart from an advertisement for the position of Commissioner General being made in April, 2017, no concrete steps have been taken to form the NLA.
Apparent injustice in tax disputes settlement
There is no impartiality in the disputes settlement process. The Appeals Board is composed of members conveying bias. Existence of the Undersecretary and the DG of Taxation in the Board purely reflects the dreaded legal saying of ‘a judge in his own cause.’ It is apparent that a taxpayer disputing an assessment or any decision will not be treated fairly and justly under the present arrangement.
Since the Appeals Board was established, only two appeals were filed. All the two objections were dismissed by the Board. The pointer could be ineffectiveness of the legal regime establishing the appeal process.
That a taxpayer disputing a decision of the Appeals Board is limited to file a second appeal to the High Court only on questions of jurisdiction, interpretation of law or evidence defeats reason. The High Court in the state is headed by a single judge. It is impossible to properly examine and evaluate the Appeal Board’s decision under the circumstances.
The writer is an Advocate and a Tax Consultant. He can be reached on email@example.com.