VAT Audits ‘looking more attractive’ to Tax Authorities in EU, SA
15 August 2013
Posted by: Author: Amanda Visser
Author: Amanda Visser (BusinessDay)
Value-added tax (VAT) audits in the European Union (EU) have become more aggressive and electronic auditing and data mining look increasingly attractive to tax authorities, professional services firm PwC said on Wednesday.
PwC Africa head of indirect tax Charles de Wet said South Africa was no exception, as businesses had also faced a rising number of VAT audits over the past few years, along with an increase in information gathering as questions raised during audits became more complex.
In a new report, titled Shifting the Balance from Direct to Indirect Taxes, PwC says the increased focus on audits may be attributable to recent studies (2009) showing a VAT gap of more than €100bn for the EU overall. The gap shows the difference between actual VAT receipts and the theoretical VAT receipts for an overall economy.
Total VAT collections in South Africa for the 2012-13 financial year amounted to R215.5bn.
Mr de Wet said governments were looking more carefully at the composition of their tax revenues following the financial crisis. "The spread of VAT and GST (goods and services tax) is continuing at a rapid pace."
According to the 2013 PwC and World Bank Paying Taxes study, VAT is used in 154 (84%) of the 184 countries surveyed. In Africa, 42 of the continent’s 54 countries have a VAT system.
The latest PwC report also refers to a statement by Pascal Saint-Amans, head of the Organisation for Economic Co-operation and Development (OECD) centre for tax policy, that VAT in the OECD countries accounts for about 20% of total tax revenue, a 70% greater share than in the mid-1980s.
Mr de Wet said VAT rates had risen in a number of countries, yet the 14% rate in South Africa remained unchanged since 1993 when it was increased from 10%.
VAT was first introduced in South Africa in September 1991. Sweden introduced the tax in 1969 and has a standard rate of 25%, with two reduced rates of 6% and 12%.
China revised its VAT legislation in 2009 and 2012 and has a standard rate of 17%, according to consultancy EY’s 2013 worldwide VAT, GST and Sales Tax Guide.
PwC UK tax policy leader John Preston said in the VAT report that customs and excise duties and other trade charges or levies were also gaining ground. "Typically these costs are not identified as taxes in the traditional sense and are buried in the cost of goods," he said.
He added that the effect of environmentally based taxes and charges on business had been relatively small until now. "While these impacts are still not comparable with those of traditional indirect taxes such as VAT, they’re surely set to rise."
Significant changes in the way customs authorities have been executing their roles and responsibilities have become clear recently. According to the PwC report, one reason for this is a heightened awareness of the costs associated with inefficient and outdated border formalities.
There has also been an increase in international competition for foreign investments.