Tax Management In Turbulent Times
10 September 2009
Posted by: Author: Dermot Gaffney
Tax Management In Turbulent Times
Despite the best efforts of the South African Revenue Service (SARS),tax revenues, after adjusting for inflation,are expected to decline this year.It is highly unlikely that the budget revenue target of R659 billion will be met.Finance Minister,Pravin Gordhan,has said that tax revenue is already running R10 billion below year-to-date estimates and the budget deficit is worsening.SARS is finding it difficult to collect all the revenue it had forecast for this year.
The gloomy global economic environment,domestic recession,falling exports and the current account deficit all contributed to a negative picture and this has prompted SARS to announce that they will use new and more aggressive approaches to collecting taxes.
Acting SARS Commissioner Oupa Magashula,while addressing the parliamentary Finance Committee, said that there will also be a sharper focus on the auditing of high net worth individuals and SARS’s large-business centre would concentrate on aggressive tax planning,transfer pricing and offshore arrangements and trusts.SARS would also employ more experts to unravel complex tax schemes.A voluntary disclosure opportunity would be offered to non-compliant tax entities and risk management and audit capacity will be strengthened.
For businesses,this could mean penalties of up to 200% of the tax and possibly prolonged litigation. According to recent reports,SARS will penalise about 7 000 businesses for out standing employees’ taxes (or PAYE) amounting to R800 million and for failure to submit their payroll information by this year’s deadline of 31 May.Employers who had failed to meet this year’s deadline would face penalties of up to 10% of their yearly payroll tax deductions.This would place an additional strain on cash-strapped businesses.
At times when liquidity is difficult to maintain,the ability of businesses to effectively and appropriately manage its tax matters becomes critical.Strategies around retrenchments,cost minimisation,improved operational efficiencies needs to be understood in terms of their tax risk profiles.
Importantly,SARS should be seen as a stakeholder in the businesses and not as an adversary.If businesses foresee problematic issues arising or have difficulty in meeting tax obligations,it is always better to open the channels of communication with SARS,sooner than later.
On the other side of the coin,SARS must recognise that the current economic and financial climate is putting severe strain on businesses, who are seeking every legitimate means of cutting overheads and managing costs to simply stay in business.An overly aggressive approach by SARS is uncalled for,and is unlikely to help either side.Both must recognise their inter-dependencies and work together to get South Africa through these difficult times.
Obtaining clarity and certainty is a key requirement in all business transactions and is vitally important in the field of taxation.An overly aggressive approach by the tax authority could lead to a break-down in the important relationship between the taxpayer and tax collector,and will ultimately be damaging to both sides.
When the tax authority gets too forceful,it fosters this aggressive culture and businesses may well take on strategies that they would not otherwise have done.This leads to a spiral of mistrust and litigation. Equally,SARS must recognise that a reduction in tax revenues is a natural consequence of the economic slowdown.The recession is a result of a global downturn and not something that South African business has brought on itself.The recession will last longer if the authorities force businesses to go under or have to increase their costs to defend against an aggressive tax authority.
Tax professionals can help businesses balance compliance and value creation.This is done by assessing their tax situation,advising on tax risk and devising innovative solutions to help businesses save on direct and indirect taxes.They can also help broker a constructive discussion between SARS and businesses.These solutions can help make a significant difference to the working capital available of a business.
By understanding today’s economic,corporate and regulatory environment,new solutions can be found for new challenges.
Source: By Dermot Gaffney (TaxTALK)