What SAIPA Members Need To know About Tax Compliance
03 September 2012
Posted by: TaxFind™
What SAIPA Members Need To know About Tax Compliance
Tax compliance has become somewhat of a dirty phrase for both tax payers and tax practitioners.Ettiene Retief, SAIPA’s Head of Tax Committee offers some interesting insights and statistics on the subject.
During the recent months media has been littered with articles regarding tax compliance and the ‘big bad tax practitioner’ that’s helping taxpayers evade tax. It’s my personal experience that taxpayers have generally become more compliant and less insistent on engaging in tax avoidance or evasion schemes. I remember the going joke some 15 years ago was that you rate your tax practitioner on how many tax loopholes he/she had named after him/her. Now, generally a tax practitioner doesn’t want any association to a tax evasion scheme. Just as accountants, auditors, and bankers get blamed for corporate failures and economic collapse, the tax practitioner is blamed for tax non-compliance. It’s all too familiar a sight for SARS when a taxpayer approaches them and blames the tax practitioner for all failures in tax administration.
During May this year SARS released the Tax Statistics for 2011, which suggested that tax revenue generally correlated with shifts in gross domestic product and economic activity. It was presented that the impact of the global recession on the South African fiscus was estimated at R255 billion in reduced tax revenue.
Tax revenues, exempt for corporate income tax, have made a strong rebound. Despite amendments to the Income Tax Act which was intended to boost second provisional tax payments, an appreciable increase in second provisional tax collections was not achieved. Further, the third voluntary payment significantly declined. Why this is a surprise still eludes me, as corporate income tax will decline in the wake of the global financial crisis which has not yet recovered to pre-crisis levels. Also, companies,at least the companies that survived, will first utilise assessed tax losses before it will pay corporate taxes on profits. South Africa has a very concentrated corporate sector, with an estimated 1% of companies paying about 60% of corporate taxes.In fact, even individual tax is very disproportionate with an estimated 3,5% of individuals paying 38% of the tax.
It was reported that Value-Added Tax collections declined sharply during 2009/10, but has recovered to an all-time high during 2010/11. This all-time high in VAT collections is despite the decline of about 80 000 registered vendors between 2008 and 2011. The decline in registered vendors was credited to SARS modernization and cleaning up of the register. However, we should include the impact that the introduction of Micro-Business, change in registration threshold, and changes in registration process, may have had. Many have been frustrated by the difficulty to register as a vendor since SARS introduced the modernisation and additional testing with regards to VAT registration.
The tax register for individuals has significantly grown, and was reported to have about 13 million registered taxpayers. However, this number is most likely understated as this does not include all the additional registrations from the last employer reconciliation(EMP501), and it is now required that all employees be registered,irrespective of the R60 000 tax threshold. SARS is expecting about 4,2 million personal income tax returns to be filing during the current filing season.
SARS reported that 80,7% individuals filed on time for the 2010/11 season, as opposed to 58% filed on time for the 2008/09 season.It is no surprise considering the modernisation of the filing season and the introduction of the administrative penalty. I’m still confounded by the continuous statements that attack tax practitioners, while no recognition is given for the role that tax practitioners played in the significant increase in on-time submissions. It was recently informed that 99% of individual tax returns filed by practitioners were done by means of electronic filing.
It was reported that administrative penalties against individuals generated some R1,6 billion in additional revenue. SARS has been very efficient in collecting these penalties by using the employer as an agent.Corporate income tax compliance came under fire as only 28% of assessment for companies regarded as being liable to file was issued on time for 2010 (compared with prior years, the percentage of assessment was 54,6% for 2007, 44,5%for 2008, and 37,5% for 2009). It was conceded that these numbers are not accurate as the tax register does not account for all dormant or inactive companies. SARS is currently busy developing a new IT14 return and other modernization that will ensure that all registered companies are also registered for tax,and that all companies will, in future, file an annual return, even if dormant or non-trading. Tax Clearance Certificates still remain a thorn in SARS’ side, dealing with corruption and the many taxpayers finding ways to defeat the system and intended result. In fact, the tax clearance certificate is not proof of tax compliance, only that the taxpayer at that point in time had no outstanding amounts or returns. SARS is considering alternatives and further development of the system to reduce risks and test and address ongoing tax compliance.
More recently, SARS introduced the VAT reviews and greater risk management and testing systems. SARS and the Minister of Finance have previously reported positive results. I’m still a little sceptical of the reported results as the review added additional administrative burden on the vendor and many incorrect additional assessments that is now subject to objection and appeal process to remedy. However, I do not doubt that the review notices and more rigorous verification process for registration has had a positive impact on fraud and false refund claims.
The new IT14SD has added another step in tax administration and compliance. The IT14SD supplementary declaration for companies has resulted in a shortage in headache and anti-anxiety medication. Beside the complexity of the declaration, the comparative testing is not easy. This new declaration has yielded many incorrect and hyper-inflated additional assessments, which now require the objection and appeal process to resolve.
The Commissioner for SARS released the SARS Strategic Plan for the next five years. It’s clear that SARS will drive tax compliance as a key component of meeting the growing demand on revenue collections.It was revealed that SARS will be focusing on improved risk management, administrative penalties (which will be extended to companies and close corporations soon), debt and cash-flow management, outreach programmes, and the implementation of the new Tax Administration Act.
Further, it was revealed that SARS has identified high-risk areas, which includes large multinational corporations (targeting cross-border structuring and transfer pricing manipulations), informal businesses, high-net-worth individuals and their use of trusts, and non-compliant tax practitioners and those who assist taxpayers in tax evasion.
Stats from SARS:
• The tax register for individuals has significantly grown to about 13 million registered taxpayers.
• 4,2 million personal income tax returns are expected to be filing during the current filing season.
• SARS reported that 80,7% individuals filed on time for the 2010/11 season, as opposed to 58% for the 2008/09 season.
• 99% of individual tax returns filed by practitioners were done by means of efiling.
• Administrative penalties against individuals generated some R1,6 billion in additional revenue.
• Corporate income tax compliance was down with only 28%of assessment for companies liable to file was issued on time
Some of the non-compliance statistics received from SARS with regards to SAIPA members are:
• SAIPA members are indebted to SARS to the tune of R30 million, of which almost R17 million is outstanding between 1 to 5 years, and R5,5 million outstanding for greater than 5 years;
• Some R3 million has been referred to appointment of agent, litigation to proceed, civil judgement to be issued, or was unresolved;
• 253 SAIPA members applied to have their debt waived via the application for a Section 91 write-off; and
• 2839 outstanding tax returns across all tax types.
The Minister of Finance during his February 2012 budget speech announced that 34 000 tax practitioners owed in excess of R260 million in tax, and that they had 18 000 outstanding tax returns in their personal capacity. Again the Minister attacked tax practitioners in a media statement (April 2012) expressing that ‘SARS will develop a rigorous risk-profiling system to identify high-risk practitioners’. The tax practitioner was not spared when the Commissioner of SARS made his keynote address at SAIPA’s 30th anniversary gala evening, presenting non-compliance statistics with reference to tax practitioners that are SAIPA members.
The regular addressing of tax practitioner compliance is a springboard for the impending amendments to the Tax Administration Act that will introduce regulation of tax practitioners, and not merely registration as currently imposed. The aim is to create a regulatory framework that allows SARS and taxpayers to pursue tax practitioners for a variety of reasons, one such being when a tax practitioner fails to perform the task required or to file a return when due.Also, the recently promulgated Tax Administration Act contains many important provisions: one such provision is that when a tax practitioner files any return or document with SARS without the required authority, it is a criminal offence. It will be critical for tax practitioners to have clear engagement letters and administration systems in place to manage the relationship and authority with clients.
Tax practitioners will be required to belong to a regulated body, such as SAIPA. Also, tax practitioners must clean up house before it’s too late.
Source: By Ettiene Retief (Tax Professional)