PricewaterhouseCoopers survey reveals the Total Tax Rate of large companies in South Africa

The Total Tax Contribution of large companies in South Africa to the fiscal coffers is substantially more than the corporate tax that is disclosed in their annual financial statements. All taxes should be taken into account in calculating the total tax rate of a company. At present, this calculation is limited to corporate taxes only and is usually disclosed in financial statements as the effective tax rate, calculated as the corporate tax charge as a percentage of Net Profit before Tax. The resulting number that companies disclose is far lower than if all taxes they bear or pay over are included.

Large South African businesses have done themselves an injustice by not communicating to the general public, let alone to their own shareholders and other stakeholders, the significant contribution they make to the fiscus – not only by way of direct corporate taxes borne, but also of the significant amounts of indirect or other taxes (such as PAYE, VAT and excise duties) that they collect and pay over to SARS.

It is not widely appreciated how many different business-related taxes there are in South Africa. The recent PricewaterhouseCoopers (“PwC”) Total Tax Contribution study shows that there are currently 21 different taxes to which the South African corporate sector is exposed. The fifty South African companies surveyed have borne R49,6 billion in taxes, representing approximately 10 percent of total government receipts of all taxes. On average these companies paid 8.7 different taxes including corporate tax, secondary tax on companies, fuel levy, excise and property taxes.

These are findings of the in-depth research conducted at the end of 2007 by PwC into how much tax large South African companies in fact pay, and how much tax they collect and remit to the South African Revenue Service (SARS). The survey was based on the now well-established PwC Total Tax Contribution Framework.

“The purpose of the study was not to act as a lobby group for the business sector, nor to argue for tax reduction, but merely to put reliable data into the public domain to show the contribution of large companies to SA tax revenues in order to inform the discussion on the shape and competitiveness of the SA tax system.” explains Charles de Wet, the PwC director responsible for the Total Tax Contribution project. “The results of the study also provide hard data on which stakeholders can base strategic decisions to improve the efficiency and fairness of the tax system. The results of the study provide pointers to the present and future role of the large corporate sector in enhancing economic growth.”

”The data received from fifty of the largest companies in South Africa provides the opportunity to gain an understanding of the impact that of all taxes. Placing this information in the public domain facilitates an informed debate with all stakeholders on the contributions that these companies make to the economy,” says De Wet.

Key findings

Key survey findings include:

• The study shows that the average Total Tax Rate (total taxes borne as a percentage of total South African profits before all business tax) of the companies surveyed was 34.3 percent in 2007. This is calculated by adding back all business taxes that have already been deducted in determining the profit before tax amount. This thus calculates the tax burden of participants.
• The companies surveyed paid an amount equal to 16,8 percent of their turnover in taxes in the form of taxes borne and taxes collected. This was split as 8.1 percent of taxes borne and 8.7 percent of taxes collected.
• Nine participants each paid more than R2 billion in taxes borne in 2007. This represented 57 percent of total tax borne by participants of R49.6 billion and 58 percent of the corporate tax amount of R32,78 billion. This again illustrates the significant contribution that large corporates make to the economy.

Key findings which have been reported previously include:

• For every R1 of corporate tax paid by the companies surveyed, they paid a further R0.51 in other business taxes. In other words, corporate tax comprises only 66 percent of all the taxes borne by companies;
• Participants paid taxes of R49,6 billion in 2007 and collected taxes of R52,8 billion in 2007. This means that for every R1 of taxes borne, taxes amounting to R1.07 were collected;
• Participants reported, on average, being responsible for 8.7 taxes borne; and
• Participants reported, on average, being responsible for collecting 3.2 different taxes..

The PwC Total Tax Contribution Framework makes it possible to benchmark companies within various industries but also allows for international comparisons. The Total Tax Rate of 34.3 percent for SA companies compares favourably with the Total Tax Rate in other jurisdictions where the framework has been used. In the United Kingdom the total tax rate for 2007 is 36.2 percent while in Australia it is 32.8 percent, indicating that the tax burden for large companies in South Africa is comparable to our trading partners. It is likely that the South African Total Tax Rate will decrease as a result of the recent one percent reduction in the corporate rate to 28 percent as well as the reduction last year in the rate for Secondary Tax on Companies (“STC”) from 12.5 percent to 10 percent.

It is also significant to note that in SA corporate tax (including STC) as a percentage of government tax revenues is 27.3 percent while in the United Kingdom this ratio is 9.1 percent. The ratio in the Netherlands is 14.32 percent and in Australia is 18.9 percent. These differences are expected when comparing developing countries to developed countries but the variances clearly illustrate the higher reliance on indirect taxes like Value-Added Tax (“VAT”) in Europe.

“The study will be repeated this year and the questionnaire will be issued during May. Data collected will make it possible to monitor tax trends and encourage the debate on the contribution that companies make to the economy” concludes de Wet

Background

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

This has led PwC to develop the Total Tax Contribution framework which has now been used in South Africa for the first time. This makes it possible to report information in a format that makes comparisons possible between companies and different countries.

For the purposes of the PwC survey, fifty large companies furnished completed detailed questionnaire within the time limit, and their responses form the basis of the study.

For the purposes of the TTC framework, a “tax” is defined as a compulsory levy, payable to government, including state or local authorities, (or an agency that remits the funds to government) by a business or individual that is used by the government or authority as part of public finance. This excludes payments for which there is a specific return of goods or services, such as a licence fee or rent paid to the government in respect of government property.

Taxes borne are the company’s immediate cost and will impact on their results, for example corporate tax, Secondary Tax on Companies, fuel levy and road accident fund, excise duties, irrecoverable VAT, property taxes etc. Taxes borne are charged to the company’s Profit and Loss account and will ultimately be passed on to customers, employees or shareholders.

Taxes collected are not the company’s own costs, but taxes collected on behalf of government from others, for example PAYE in respect of employees. Taxes collected are administered by the company, involve costs of collection and compliance, and indirectly impact on the company’s results since, for example, indirect taxes collected will impact prices to customers and employee taxes the cost of labour.