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SARS’s Large Business Centre: Productive Relationships With Significant Taxpayers

Saturday, 01 November 2008   (0 Comments)
Posted by: Author: Matsobane Matlwa
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SARS’s Large Business Centre: Productive Relationships With Significant Taxpayers

The Large Business Centre (LBC) at SARS has been operating since 2004 and was established to serve the needs of both large corporates, as well as the country’s high net-worth individuals.TAXtalk spoke to Matsobane Matlwa, general manager of the LBC about the centre and its operations.

The LBC offers services to large corporations and high net-worth individuals.What are the specific tax needs of these parties?Large corporates are governed by the same acts as small and medium businesses but because large taxpayers make lots of money, they are able to employ the best tax brains in the country to structure their tax matters in such a way that they can minimise their tax liability. The LBC recognises that these are major players in the country’s economy that contribute significantly to its tax base. The LBC, therefore, offers them specific services such as a quick turnaround time to provide certainty in their tax affairs.One of the LBC’s greatest challenges is that there are not enough resources to cope with the demands of these big players.To overcome these challenges, there isa team of professionals to specifically deal with the demands of each of eight sectors, i.e. communication, financial services, mining, construction, retail and the like.

High net-worth individuals are those people who earn a salary of at least R7 million per year or who have unencumbered assets of at least R75 million.Because they usually have complex tax affairs, they would use the services of tax consultants who then deal directly with the LBC.

What are some of the successes you have had since the establishment of the LBC in 2004?One of the key successes has been that we have been able to attract some of the best tax professionals to the LBC to deal with complexities such as transfer pricing and international tax, amongst others.Through the LBC we have also been able to change the compliance culture of large companies, as one of our main mandates is to encourage companies to comply.Over the past three or four years the LBC has also been able to contribute in the region of 70% of the entire income tax to SARS, which amounts to about 35% of the overall revenue gathered by SARS.

The LBC has also hosted African states such as Tanzania, Zambia and Mauritius, as well as other emerging economies – India and Brazil – to show them how a large business centre of a revenue service operates.With offices in KwaZulu-Natal, the Western and Eastern Cape, the LBC has been able to expand its services to taxpayers in these regions.The LBC has also been able to grow its tax base from about 10 000 in 2004 to 20 000 currently.

Does the LBC focus only on compliance or is there also an educational role involved?

The LBC’s compliance model consists of three pillars: enforcement, education and service.The education component is not driven as strongly as the other two pillars, as large businesses are generally well versed in tax matters and do not need to be educated in the same way as individual taxpayers or small businesses, for example.When a specific issue arises, such as the new PAYE structure, we send out people to top companies to inform them about these changes.Over the past number of years SARS has had unprecedented success gathering tax for the fiscus.

Has the tax compliance of large corporations and high net-worth individuals been in line with that of small businesses, for example?

When it comes to compliance, we deal with four different aspects – registration, filing, disclosure and payment.Registration isn’t an issue, as our client base is well defined and well known. When it comes to filing, most of the companies we deal with have no problem in submitting their tax returns. Disclosure is an area where the greatest challenges lie, as the Income Tax Act has many different interpretations.So, most of our time is spent trying to find common ground between these different readings - the Act  cannot in itself foresee all possible interpretations.The final element of compliance  payment is usually not a problem, as corporates are not averse to paying up, once the amount has been settled.

When it comes to high net-worth individuals there is usually no problem with registration either, as these people have been on SARS’s database all along. Not all of them have been taken up in the LBC yet, as we incorporate them as our resources allow.In some cases, high net-worth individuals will phone the LBC to say that they want to be included in the services we offer.

What kind of working relationship does the LBC have with tax practitioners (accountants, tax attorneys and the like)?

We see tax practitioners as agents representing taxpayers and who do so to the best of their abilities. We appreciate that they have a mandate to serve the interests of their clients, while we have a mandate from government to gather tax.We are looking after our relationship with tax practitioners, as we know that they represent a multitude of taxpayers – not only one company – and that a good relationship with them will have a positive ripple effect.This is a process that will not happen overnight, as trust needs to be built.

The OECD meeting, held in Cape Town in the beginning of the year, focused, amongst others, on exploring ways to assist African tax administrations to develop their capacity and to raise funds. What role can South Africa, as an African country, play in this regard?

The Cape Town conference was beneficial and the time has come for South Africa to organise a similar conference with African states so that we can share our experiences.It is envisaged that tax authorities could second people to come to South Africa to learn, and that, similarly, we can go to other African countries to learn from their experiences.This whole process could help along the African Renaissance.

Recently the National Energy Regulator granted Eskom a much smaller price hike than was initially expected.What are the tax implications of the hike?

When it comes to taxation, the whole process is triggered by the gross income definition and Eskom will be taxed accordingly.When it comes to the consumers – and more specifically the large corporations the LBC deals with – the price hike will most probably be part of their production cost and will, therefore, most likely be eligible for a deduction, if it meets the requirements of the general deduction formula that says that the expenses must be incurred in the production of income and not be of a capital nature.We, therefore, do not foresee that the price hike will have a major effect on tax.

Source: By Matsobane Matlwa (TaxTALK)



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