Tax Compliance in SA Set to Get Harder
19 December 2013
Posted by: Author: Amanda Visser
Author: Amanda Visser (BDlive)
South Africa’s tax system is among the most sophisticated in the world, surpassing many of its African peers while comparing favourably with countries such as Brazil, Russia, India and China.
However, of concern is that the gains made over the past years may be eroded, particularly regarding the ease in the payment of taxes.
South Africa is ranked 24th out of 189 economies in terms of how easy the tax authority has made it for a small to medium-sized domestic company to pay its taxes. According to the ninth Paying Taxes report by the World Bank and PwC, it takes a typical medium-sized company in South Africa 200 hours to comply with its tax obligations.
It would make seven tax payments and has a total tax rate (the cost of all taxes paid) of 30%. This is against the global average of 268 hours of compliance time, almost 27 payments and a total tax rate of 43%.
Last month, the Global Forum on Transparency and Exchange of Information also announced that South Africa was one of 18 countries — out of 50 — that comply with global standards on the transparency and exchange of information upon request.
Finance Minister Pravin Gordhan remarked that the ranking on transparency is testimony to the excellence of some of South Africa’s post-1994 institutions.
Over the past two decades, the government has embarked on major reforms in a bid to ease the burden on taxpayers and ensure that they comply with their tax obligations. The present outcomes are testimony to such efforts. The amount of total tax payable by an average medium-sized company has dropped from 37.6% in 2004 to the current rate of 30%.
However, the World Bank report warns that the medium-term outlook for the compliance burden on South African companies does not look rosy. It takes the South African Revenue Service (SARS) to task for introducing new measures that will increase the burden.
These include the introduction this year of a new corporate income tax return with enhanced disclosure requirements, along with introduction of a supplementary income tax return whereby companies may be required to reconcile accounting profits, corporate income tax profits, payroll taxes and indirect taxes.
The chief legal officer at SARS and chairman of the Global Forum, Kosie Louw, recently returned from the forum’s sixth meeting, in Jakarta, Indonesia. It was there that the announcement was made on the review process of 50 countries’ compliance with global standards on the transparency and exchange of information on request.
Mr Louw confirms that the Organisation for Economic Co-operation and Development (OECD) is developing a global standard for the automatic exchange of information between governments. Information exchange includes providing information upon request, spontaneous information exchange, and the automatic exchange of information.
According to an OECD document published last year, information exchanged automatically is normally collected in the source country routinely through banks and employers. But this can go further to include "useful information" such as changes of residence, the purchase or sale of property, or even value-added tax refunds.
"As a result, the tax authority can check its tax records to verify that taxpayers have accurately reported their foreign source income," the document says. " Information concerning the acquisition of significant assets may be used to evaluate the net worth of an individual, to see if the reported income reasonably supports the transaction."
Mr Louw says that this systematic and periodic transmission of "bulk" taxpayer information will place a huge burden on financial institutions such as banks, and so it is necessary to develop a global standard for the exchange of information by the source country to the residence country.
He says all 122 members of the Global Forum will be reviewed in terms of their transparency and the quality of the information exchange.
This article first appeared on BDlive.com.