by Lorys Charalambous, Tax-News.com, Cyprus
South African Revenue Service (SARS) Commissioner Oupa Magashule, in his address to the parliamentary Standing Committee on Finance examining its 2011 tax collections, has pointed out the contrast between the low level of tax compliance by companies and the substantial improvement in compliance by individuals.
He said that South Africa has been able to withstand the global economic problems of recent years through the use of prudent fiscal policies supported by a strong culture of compliance.
From 2000 to 2008, SARS maintained a compound annual growth rate in tax collections of 13.2%, and still continued to grow by 9.1% in 2008-9. Even after a contraction of 4.2% in 2009-10, due the combined effect of flat consumption and trade taxes and reduced company profits, tax revenue rebounded strongly by 12.6% in 2010-11. All taxes, with the exception of corporate income tax (CIT), have now recovered to pre-crisis levels.
For the 2011-12 year, he disclosed that unaudited revenue shows growth of 10.2%, while tax collected in the current 2012-13 fiscal year is expected to grow by 11.3%. Tax revenue will have thereby increased from ZAR114bn (USD13.6bn) in 1994-95 to over ZAR742.7bn.
Within those figures, Magashule commented that "the very visible signs of significant compliance gains since 1994 were (based on) significant increases in the number of taxpayers,” and, in particular, the growth in the individual tax register from 1.7m in 1994 to 6m in 2010. The register has since doubled again following a policy change in 2011 to register all individuals in formal employment.
Over the same period the number of companies registered for income tax increased from 422,000 in 1994 to 2m in 2011-12, while registered value-added tax vendors increased from 397,000 in 1994 to 664,000, over the same period.
He also confirmed that the growth in compliance is reflected in the increase in submissions of individual income tax returns on time to SARS. On-time filing increased from 58% in 2008-9 to 80.7% during the 2010-11 tax season.
He directly attributed that improvement in filing to the impact of the modernization programme "which has made it ever easier to submit a return, has vastly improved the turnaround times for assessment and the payment of refunds, and has allowed more accurate enforcement of return submissions by individuals including through administrative penalties”.
He noted, however, that similar compliance is not yet reflected in the statistics for CIT. The percentage of assessments completed for companies liable to submit returns is less than satisfactory at 54.6% for 2007, 44.5% for 2008, 37.5% for 2009 and 28% for 2010, and a great part of the reason for that is the inadequacy of the registration information SARS has for companies, many of which are listed as active but in reality are either dormant or non-existent.
Magashule revealed that SARS is currently busy with the modernization of CIT, which includes a clean-up of the register and working with other government departments in this regard to ensure companies which are registered are also registered for tax.
The statistics also show that South Africa continues to have a very concentrated corporate sector with less than 1% of companies paying just over 60% of corporate taxes. Moreover, of the 580,000 companies that were assessed in the 2009 tax year, 202,000 made a loss, whilst a further 108,000 had zero taxable income.