Government’s mandate is ostracising SARS
While there have been many reports in the media outlining the need for the South African Government to increase the capacity of the South African Revenue Services in order for it to increase its level of tax collection, the pressure which it is placing on SARS to reach a certain quota in terms of this collection is placing the company in a position where it is isolating itself from the tax payer, causing an untenable situation which is fast becoming unsustainable.
South Africa weathered the storm of the global financial crisis very admirably. While larger economies in Europe and the US were looking towards their Governments and the World Bank to bail them out of the situations they were in, the South African economy didn't have to make such calls.
However, we are feeling the effects of the slow recovery from the crisis which is affecting the rest of the world. The country's current growth rate is 2.6% and Government has indicated that it wants this to increase to 6%. Government needs a cash injection in order to achieve this, and while there is still a significant tightening of the belts, revenue from income tax is the only way to achieve this.
Important generator
While it is true that SARS has got a low success rate in terms of recovering income taxes, the role of the South African corporate industry in terms of engaging openly with SARS in this regard, cannot be ignored. According to the recent Total Tax Contribution Survey of Large Companies in South Africa, which is published by auditing giant Price Waterhouse Coopers, 35 of the country's large corporates contributed R152 billion towards the country's economy in 2013.
South Africa's large companies contributed a total of R152 billion in taxes to the economy, making up 17.6% of Government's total tax receipts for its fiscal year which ended 31 March 2013. For 2012, these amounts were R143 billion and 18.2% respectively. Total taxes borne by large companies were R48.9 billion for 2013 and R49.9 billion for 2012. Corporate income tax continues to be the highest tax borne by companies operating in South Africa, equating to 70.1% of total taxes borne for 2013 and 73.5% for 2012.
The survey considers the total contribution made to the national tax revenues by South Africa's large companies participating in the survey and includes comparative data that covers the 2012 and 2013 fiscal years. The changes in the country's economic cycle are also reflected in this report.
Paul de Chalain, Tax leader for PwC Africa, says, "In the wake of the recent global financial crisis, the business community across the world has embarked on corporate governance reform, where transparency is a constant theme. The total tax contribution framework provides a robust approach to facilitating such transparency in the area of tax.”
"In the South African context, the transparency of tax contributions is critical to the priorities being considered by the recently-constituted Tax Review Committee, otherwise known as the Davis Committee. Among the initial priorities announced by the Committee is the tax mix which is the various categories of tax upon which the state is reliant, and the total tax contribution by corporates will certainly be an important source of perspective on this issue. Another issue being investigated by the Committee is the possible impact of base erosion and profit shifting (BEPS) and the contribution by corporates may also shed light on this question.”
Betraying trust
With this in mind, it would make sense that SARS would be eager to collect as much taxes as humanly possible. However, it is the manner in which they go about it.
PwC partner, Osman Mollagee explains that it is not as simple as accusing SARS of over aggressiveness. "Some of the companies in the local market adopt a strategy of aggressive tax planning and there is no one around who will deny that this is taking place,” says Mollagee. Who adds that this is forcing SARS to adhere to the old proverb of once bitten, twice shy. Therefore, they see their aggressiveness as a necessary evil.
"We are all guilty of this. Once someone lies to us, we adopt a very cynical outlook when dealing with them in the future. And there are people who lie to SARS. But adopting the strategy of painting the whole country with the same brush is not helping SARS because we are seeing customers adopting the standpoint of: no matter how good or honest I am, SARS is treating everyone as inherently evil. Therefore, I won't be as forthcoming as I should or can be,” says Mollagee who adds that the market is not there yet.
We have already profiled the fact that tax liability insurance is becoming a necessity in the market because of the aggressiveness of SARS's approach to tax collection, but how bad is the situation? While Mollagee points out that there are pockets of brilliance within SARS, it seems that these pockets have big holes in them because there is a feeling in the market that SARS is adapting a baseball bat collection policy rather than a consultative policy.
"We are finding that companies are becoming one-stop-shops to SARS. They will rather go to one entity where they will get a higher return rather than target a number of smaller companies where they will at best get mediocre returns. And SARS also hold the view that if they can extract an extra 1% or 2% out of a company that is already paying R1 billion in taxes, they won't really feel it,” says Mollagee, who adds that transfer paying and pay as you earn taxes are still the most significant.
Editor's Thoughts:
Seeing the whole country as villains is placing significant strain on the relationship that SARS has with the public. However, this does not matter to them at the moment as Government has given them targets which they need to meet in terms of collections. This may mean that advisers and insurance providers may find themselves cashing in on SARS' recent aggressive behaviour. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts [email protected].
