PricewaterhouseCoopers survey reveals just how much tax large South African companies really pay

An inquiry into the amount of tax paid by the corporate sector must look beyond corporate income tax and take account of all business-related taxes borne and collected, in other words, the “total tax contribution”.

This is one of the findings of in-depth research conducted at the end of 2007 by PricewaterhouseCoopers (PwC) into how much tax large South African companies in fact pay, and how much tax (such as PAYE and VAT) they collect and remit to the South African Revenue Service (SARS). This is the first such study in South Africa, and the results will be of great interest to stakeholders such as National Treasury, SARS, the corporate sector, institutional investors, trade unions and others.

“The PwC study has corroborated what similar PwC studies of foreign countries have shown,” explains Charles de Wet, the PwC director responsible for the Total Tax Contribution project.

Key findings arising from the survey

“The factual data arising from the survey is being put into the public domain by PwC to facilitate an informed debate on the present and future shape of South Africa’s tax system as it affects large companies,” says De Wet. Key survey findings include:

• In South Africa, the total number of taxes levied (and either borne by the companies or collected by them) is currently 21 after the abolition of Regional Services Council levies and Retirement Funds tax. Prior to 31 March 2007, this number was 23, which included 21 national taxes and two local taxes. By way of comparison, similar studies in the United Kingdom identified only 22 business taxes, while 56 taxes were identified in a study in Australia and 31 in the Netherlands.
• In assessing the tax burden of the corporate sector, it is necessary to look further than corporate income tax and to take account of all business taxes borne by companies, and hence the aggregate of all taxes paid by companies, as well as the burden of collecting taxes on behalf of the fiscus.
• The survey results corroborate the importance of large South African companies to government finances by way of taxes borne and collected. The 50 companies surveyed bore in aggregate R50.4 billion in taxes and collected a further R52 billion on behalf of government (national and local) in 2007. This represented 10.1 percent of government receipts in respect of taxes borne. In addition, 27.3 percent of the total corporate tax in 2007 and 31.9 percent of Secondary Tax on Companies (STC) was paid by these 50 companies.
• On average, the companies surveyed reported paying 8.7 different business-related taxes.
• An important issue highlighted by the PwC study is the importance to SARS (and to the corporate sector) of taxes collected by companies, though not borne by them, and paid over to SARS. These include PAYE, VAT and excise duties. On average the companies surveyed reported collecting 3.2 different taxes and paying them over to SARS.

Support for the survey

Michael Spicer, CEO of Business Leadership, an organisation whose members include South Africa’s largest corporations says, “Taxation and specifically corporate taxation is always an important and lively part of the economic debate between business, government and other stakeholders in market democracies. It is vital that such debate be underpinned by strong empirical research and evidence. Until this timely PwC report, such evidence has been lacking in South Africa and the quality of the debate on corporate taxation on all sides has suffered accordingly. Business Leadership is a body comprising the 65 largest South African and multinational companies invested in South Africa, from whose ranks the majority of respondents were drawn, and is delighted to have participated in this endeavour.”

De Wet confirmed that the purpose of undertaking this total tax contribution study was not to act as a lobby group for the corporate sector, nor to advocate specific tax reforms, but simply to elicit factual data to place in the public domain as the basis for an informed debate between all stakeholders.

Background

Around the world, large corporations are a vital source of revenue for the national tax authorities. But how much tax do these corporations really pay? Is tax taking an inordinately large slice of their profits? Are governments relentlessly increasing the number of taxes and increasing their overall tax take? Is big business being crushed by the expense of complying with tax legislation?

There is also a perception that large companies do not pay as much tax as they should. Again, such perceptions are seldom supported by empirical data and are frequently based on generalisations, speculation and innuendo.

In times past, aggressive tax avoidance by the corporate sector was regarded as within the rules of the game. In more recent years, the payment by a corporation of the tax properly due by it is increasingly being regarded as part of its corporate social responsibility, and as a corporate governance issue.