Tax Compliance Burden ‘irks big firms’ in SA
25 October 2013
Posted by: Author: Amanda Visser
Author: Amanda Visser (Business Day)
Tax experts have warned of growing frustration among major companies about the tax compliance burden they face, amid warnings of a backlash against the aggressive tactics the South African Revenue Service (SARS) uses.
Fewer than 40 large companies in South Africa contributed R152bn of the total revenue of R813bn collected during the 2012-13 fiscal year, representing 18% of the total tax revenue, according to the fifth PwC tax survey, released on Thursday. The same companies contributed R143bn in the previous fiscal year.
Osman Mollagee, a tax partner at PwC in Johannesburg, said the firm was sensing an element of fatigue and frustration from its clients with the level of aggression and poor service from the revenue service. "SARS has been brilliant in collecting taxes, but in some instances it has destroyed relationships," he said.
Mr Mollagee expressed concern over compliance levels in South Africa. There were growing fears that corporate taxpayers were reaching a point where they believed it did not matter how compliant they tried to be, and since SARS was treating everyone with suspicion they might as well join the noncompliers.
"That is a concern we have, but I do not think we are there yet," Mr Mollagee said.
The survey shows the companies have a total tax rate of 30.9% when all the taxes they pay and collect are considered, compared with a similar figure in Japan of 41.8%, the UK’s 38.7% and Luxembourg’s 24%.
The data provided by the companies was for the financial year to March. About 50 companies were invited to participate, but only 35 could find the time. The rest said they were inundated with work because of compliance and audit issues with SARS.
The 35 companies fit into SARS’s definition of large companies, that have a taxable income of R200m and more. South Africa only has 266 companies that qualify.
Sharon Smulders, head of tax policy and research at the Institute of Tax Practitioners, said South Africa was competing against countries such as Ireland, which had a corporate income tax rate of 12.5% compared with South Africa’s 28%. She said collections were at a level where little more was to be squeezed from current taxpayers. S A should consider lowering the tax rate for companies to attract foreign direct investment.
Mr Mollagee said SARS had reached a level of maturity in terms of administrative efficiency where it could not grow collection of taxes by doing things more productively. "South Africa need more taxpayers and we potentially need more taxes."
Finance Minister Pravin Gordhan set the scene for increased taxes during his medium-term budget policy statement delivered this week. He said any government that wanted to increase spending without expanding its deficit had to get more taxpayers or more taxes. But to make more taxes politically palatable the government had to crack down on wasteful expenditure.
Mr Gordhan himself began cracking the whip on wasteful spending by public servants.
The total taxes borne by participants in the survey were R48.6bn for the survey period, compared with R49.9bn in the previous survey period. Taxes borne are the actual cost to the company, with the biggest tax being borne corporate income tax amounting to 79% of the tax cost of companies.
Taxes collected are not an actual cost to the company, but it is an unpaid service to SARS. From the total contribution companies collected R103bn with value-added tax making up 20% and pay-as-you-earn tax 28%.
Paul de Chalain, tax leader of PwC Africa, said in a statement on Thursday that the business community across the world had embarked on corporate governance reforms in the wake of the global financial crisis. Transparency had become a constant theme.
The total tax contribution framework provided a robust approach to ensuring transparency in the area of tax.
The PwC survey’s findings appear to be broadly in line with the 2013 Tax Statistics Bulletin that SARS and the Treasury released on Monday.
SARS spokesperson Adrian Lackay said the revenue service valued its relationship with big corporations and their contribution to the tax system. "This is not the first survey PwC or its corporate peers have published in which there appears to be a number of concerns with the way in which SARS administers tax laws or the services it provides."
Generally, the findings of these surveys and the details of the complaints raised were never provided to SARS, Mr Lackay said. A far more constructive way would be for PwC or its clients to put their concerns in writing and approach SARS with the details of their grievances.
"SARS can then deal with these cases and establish the merits of what had transpired," Mr Lackay said.
This article was first published on businessdaylive.co.za