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Tax System Better Yet Tough Issues Remain

Friday, 02 January 2009   (0 Comments)
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Tax System Better Yet Tough Issues Remain
Companies who think they can pull wool over the eyes of SARS officials with VAT and transfer pricing will in future feel the heat yet tough issues remain.Chief operating officer of the South African Revenue Services (SARS), Edward Kieswetter, warns that there will be greater focus on these two tax issues in the near future.

The main reason for this is that the risk of revenue losses in these areas increased dramatically since the effects of the global financial crisis started hitting home.Kieswetter sounded the warning bells during a panel discussion of PricewaterhouseCoopers (PwC) in Johannesburg at the African launch of the Paying Taxes 2009 survey.

This is the fourth consecutive year that PwC, the World Bank and the International Finance Corporation (IFC) did the survey that covered 181 economies. The 2008 survey covered only 179 economies.

The survey determines the ease of paying taxes in a country based on the total tax rate, the amount of tax payments and the time spent completing tax returns.

The Maldives is top of the list of economies that make it easy to pay taxes, with Belarus claiming the last place for a second consecutive year.South Africa improved its position in the rankings from 61 to 23.The main reason for this improvement was the lowering of the tax rate for companies from 30% to 29% and the abolishment of Regional Services Council levies.Due to these changes, South Africa’s total tax rate decreased from 37,1% in 2007 to 34,2% in 2008 (the survey was done in the 2007-08 tax year).This allowed the country to improve its rating in the category for total tax rate from 62 on the list to 51.

The country will most probably improve its ratings in the next survey even more with the further reduction of the company tax rate to 28% and the scrapping of the Secondary Tax on Companies (STC) and replacing it with a dividend tax in the hand of shareholders.
The Minister of Finance, Trevor Manuel, announced a simple presumptive tax system for small businesses that will ease their administrative burden considerably.According to the survey results, it takes a medium-sized company in South Africa 200 hours to complete its tax returns. In the previous survey it took 350 hours. This improvement moved the country from 131 to 73 on the list of economies.In the category for the amount of payments a mediumsized company in South Africa has to make, the country came in at nine.  In Romania, a similar company has to make 113 payments. Even though South Africa is not under the top ten economies where it is the easiest to pay taxes, it does feature under the top five reformers.

Some of these reforms over the years included fewer payments for VAT and the ease of registering for VAT.SARS announced at the end of last year, however, that it would introduce far more stringent procedures when a company wants to register VAT.The reason for these changes is an increase in fraudulent VAT refunds. 
Group head of Taxes at Sasol, Ray Eskinazi, raised concerns with regard to the compliance burden of South African companies during the panel discussion.Proper record keeping is taking up an enormous amount of time at South African companies, he said. These issues should be reflected in the survey.

"Fast and efficient administration means less hassle for business, and often higher revenue for governments.In Mauritius in 2007-08, the government collected $150 million more in revenue than it projected,” according to the findings of the survey.
The focus: creating an enabling environment for business through low and simple taxes coupled with fast and efficient administration. The strategy paid off.Mauritius ranked 11th. 

The survey

The survey takes a small to medium-sized company which has a set of financial statements and transactions. It started operations in 2006 and operates in the country’s largest business city.The company in the 2009-survey produces flowerpots and sells them at retail. It has 60 employees including four managers, eight assistants and 48 workers.
The ranking

The ranking of an economy in the survey is determined by three indicators.These include the total tax rate of a company, the amount of time spent completing its tax returns and the amount of payments per annum.

Africa’s performance

In Africa six economies made tax reforms. Several countries reduced their corporate tax rates. Burkina Faso reduced its rate from 35% to 30%, Côte d’Ivoire reduced its rate from 27% to 25% and Madagascar reduced from 30% to 25%.
The three countries in the Southern African Development Community (SADC) in the top 30 economies that made it easier to pay taxes are South Africa (23rd), Botswana (17th) and Mauritius (11th).

South Africa does better than nine economies in (SADEC) in terms of the total tax rate. South Africa now boasts a total tax rate of 34,2%, but companies in Gambia stagger under a rate of 238,2%, the heaviest of all the participating economies.
This article was published in SAKE24 

Source: By SAKE24 (TaxTALK) 



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