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SA’s Tax Burden For Corporates And Other Businesses

22 January 2010   (0 Comments)
Posted by: Author: D.N. Erasmus
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SA’s Tax  Burden For Corporates And  Other Businesses

In a recent business article, published on a well-known South African blog on 19 March 2010,journalist Samantha Enslin-Payne reported that SA relies on a few firms to pay the bulk of business tax income. Revenue from corporate tax almost tripled to R165.4 billion in the five years to March 2009,according to the 2009 Tax Statistics report released yesterday by the National Treasury and SARS.However, the bulk of the corporate tax collected came from less than 10% of registered companies. In 2006, there were 575 000 companies registered to pay tax. Of the R96 billion corporate tax income in that year,R93 billion came from less than 10% of the registered companies.Data from the 2010 Budget Review, which was published in February 2010,estimates that in the 2009/10 tax year there will be a 21% decline in company tax collected to R130.5 billion,an indication of the effects of the recession on profits and companies’ survival.

The heavy tax burden carried by less than 10% of corporates registered as taxpayers in South Africa can have its success subscribed to the formation and functioning of the SARS Large Business Centre, formed and geared to consistently pursue large corporate taxpayers in South Africa,that make up that less than 10% number.

The negative side to this is that with a recession,the R35 billion fall-off on taxes comes from these few companies.This will cause SARS to cast their collection net much wider to other smaller business taxpayers outside the LBC mandate.It seems more logical for SARS to split the shortfall of R35 billion between the remaining 525 000 or so companies that are paying less than the 10% overall tax burden, as it is clear from a recent tax risk management survey that most businesses are not fully tax compliant.Tax-Radar.com has run a tax risk management survey for a number of years in South Africa. Here are the basic results(situated at http://www.surveyconsole.com/console/ShowResult)

•83% of participants are not fully tax compliant.

•78% don’t have a tax strategy–absolutely necessary to determine tax risks and eliminate them (different to an auditor’s report).

•Just under 60% of operating and transactional divisions do communicate directly with tax compliance officers,exposing some obvious tax mistakes.

•80% have not undergone a PAYE audit in the past two years.

•5.67% have not undergone a VAT audit in the past two years.

•72 % of boards either never or only sometimes discuss tax risk issues.These results show a potentially major exposure to tax risk.

Add to this the fact that audits will soon no longer be compulsory for private companies,tax risks will only increase.The counteraction by SARS will be to increase the number of audits on smaller businesses.SARS in the past has shown a more than 79% success rate in raising revised assessments when doing audits on businesses.That is a significant success rate, and is illustrated by the findings of the tax risk management survey conducted by Tax-Radar.com.In the future, businesses can expect some draconian powers to be implemented by SARS when the new proposed Tax Administration Bill becomes law.Some of  these powers include:

•Collecting revised taxes immediately on revised assessment, even whilst the objection proceedings are being implemented.

•SARS obtaining asset protection orders top revent taxpayers selling assets.

•Confiscating a taxpayer’s passport whilst taxes are outstanding.

•Applying to court to have a business cease trading whilst outstanding taxes remain payable.

•Implementing collection mechanisms against third parties who were involved in the financial affairs of the taxpayer.

Tax risk management has never been more relevant.For more information,consult Seven Habitual Tax Mistakes,LexisNexis,authored by the writer of this article,Prof Daniel N. Erasmus(Adjunct Professor of Law,Thomas Jefferson School of Law,in international tax planning,tax administration and  SA   tax principles),an  experienced tax risk  management and SARS tax dispute specialist.

Source: By D.N. Erasmus (TaxTALK)


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