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SARS to target construction, corporate tax evasion

09 May 2012   (0 Comments)
Posted by: SAIT Technical
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By Linda Ensor (Business Day 9 May 2012)

The construction industry, already the target of intense scrutiny by the Competition Commission for allegedly collusive behaviour, is now being targeted by the South African Revenue Service (SARS) which described the sector as the least tax-compliant economic sector in SA.

Construction companies, big and small, "stack up very poorly” compared with other sectors in terms of their compliance with SARS legal requirements — registration, filing of tax returns, payment of tax and declarations, SARS Commissioner Oupa Magashula said.

He told MPs at a briefing to Parliament's standing committee on finance SARS planned to ensure that construction companies which had benefited from public sector tenders, maintained their tax-compliant status for the full duration of those contracts, and not only when they needed a tax-clearance certificate at the beginning of the process.

The construction sector received a significant slice of public infrastructure spending — so the stick SARS plans to use could be a powerful tool in ensuring compliance.

Mr Magashula also said business was increasingly using sophisticated and complex financial schemes to avoid their tax obligations.

"We have detected an increase in the use of cross-border structuring and transfer-pricing manipulations by businesses to unfairly, and illegally, reduce their local tax liabilities.

"Part of this is due to pressures on profit due to the prevailing economic climate and part of it is due to the growth in multinationals which account for nearly 70% of all world trade,” Mr Magashula said.

The clothing and textiles industry in particular had been threatened by undervaluations of imports at customs, which would be another area of focus this year.

Mr Magashula gave the example of imported baby blankets, with a claimed value of R16 each when in fact they commanded a retail price of R300, and of imported towels with a stated value of R4,28/kg when the reference price was nearly four times higher at R15/kg.

VAT refunds was also proving to be a pressure point for SARS, as companies facing tough economic conditions — especially small companies struggling to maintain cash flow — urged it to release legitimate refunds as rapidly as possible. There had also been an increase in the incidence of attempted VAT fraud.

The introduction of SARS new VAT risk engine last May had yielded R11bn in revised assessments in favour of SARS.

Mr Magashula also noted "significant progress” had been made in debt management. Preliminary figures for the 2011 -12 fiscal year showed the debt book had risen just 1,3% compared with the 14-year compound debt growth rate of 8%.

This included an additional R1,7bn in debt generated by new administrative penalties.

"Our initiatives in this regard are starting to pay off but there is still a long way to go in getting our debt book to the levels we would like,” Mr Magashula said.


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