The Total Tax Contribution of large companies in South Africa is substantially more than the corporate tax that is disclosed in their annual financial statements.
This is one finding of in-depth research conducted at the end of 2007 by PricewaterhouseCoopers (PwC) into how much tax large South African companies pay, and how much tax they collect and remit to the South African Revenue Service (SARS).
“A multiplicity of taxes makes a country’s tax system complex and increases the compliance burden” explains Charles de Wet, the PwC director responsible for the Total Tax Contribution project. “The compliance burden is the cost of complying with the tax laws, as distinct from actually paying the tax.”
Key findings
”The data received from fifty of the largest companies in South Africa provides the opportunity to gain an understanding of the impact that all taxes have on the operations and infrastructure of companies. 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 survey findings include:
It is often the major taxes like corporate tax, employees’ tax (“PAYE”) and Value-Added Tax (“VAT”) for which companies have dedicated resources, including people and systems, to ensure compliance with the relevant legislation. For the effective management of tax and tax risk it is crucial that there are adequate resources for all taxes paid and collected as they make up a significant portion of the total tax burden. While 35 percent of the amount of these other taxes, excluding corporate tax, is spread across 7 other taxes (the average reported by the participating companies), this still requires deployment of resources to ensure accurate compliance.
The risk associated with taxes collected by companies and paid over to SARS is under-estimated. The largest amounts of tax collected in this way are fuel levies, PAYE and VAT. In many cases companies are acting as the unpaid tax collector for the fiscus and it could be argued that a company is compensated by the interest that it could earn on funds between the time the amounts are received and the date that the payments are due to SARS. This argument would apply for example to VAT in a cash business. But any interest on salaries, wages, excise duty or even on VAT where credit is provided, would be minimal and is unlikely to compensate for the costs of collecting these taxes. These limited benefits do not compensate for the risk that the business is required to take in collecting these taxes. Particularly, as any non-compliance by the collecting company would lead to tax assessments which, while being tax paid, are in fact a penalty for not complying with the legislation which could have a significant detrimental financial effect.
The percentage of corporate tax to total taxes borne by companies in South Africa is similar to the percentages identified in other countries. In Australia this ratio is also 65 percent while in the United Kingdom and The Netherlands, corporate tax makes up 52 percent and 55 percent of total taxes respectively.
There is however a substantial difference in the ratio of taxes borne to taxes collected. In the United Kingdom for every ₤1 borne by the company another ₤1.90 was collected on behalf of revenue authorities. The higher ratio is expected in Europe because of the social security contributions made by employers. Australia also has a slightly higher ratio at A$1 to A$1.19.
Background
There is also 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 lead 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.
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