Over the past few years, South Africa’s tax landscape has undergone significant change with a number of leadership, structural and policy changes. In addition, the COVID-19 pandemic has impacted government coffers, disrupted businesses, and placed tremendous financial strain on individuals.
In response to this, the Government has introduced a number of economic measures, including tax relief, in order to protect businesses and alleviate financial pressure on vulnerable employees.
These are some of the key highlights from the 4th edition of PwC’s Annual Taxing Times 2021 Survey released today. The survey was created to benchmark corporate taxpayers’ experiences when dealing with the South African Revenue Service (SARS). The latest survey was conducted between May and June 2021. A total of 159 respondents completed the survey. Taxpayers from across 21 industries participated in the survey, with the financial services sector being the highest contributor.
Elle-Sarah Rossato, PwC Partner and Africa Lead for Tax Controversy & Dispute Resolution says:
“This year’s results were telling as they tested taxpayer perceptions regarding interactions across a multitude of channels with SARS in challenging times. In some areas the results were positive, such as a significant improvement in the turnaround time of Voluntary Disclosure Programmes (VDPs) and VAT refund pay-outs. In other areas, however, such as finalising audits, service delivery, delays in settlement proposals as well as overall communication with taxpayers, SARS did not fare well.”
The report presents respondents’ feedback across the following areas: Voluntary Disclosure Programme (VDP), issues faced by corporates in managing audits and disputes, the re-capacitation of the high wealth individual taxpayers’ unit at SARS, SARS’ service delivery, and the impact of the COVID-19 measures on respondents’ tax affairs.
Key findings from the survey include:
The audit process: Over half (54%) of survey participants felt that they are ‘extremely likely’ to be selected for an audit/verification by SARS following submission of their Corporate Income Tax (CIT) returns (compared to 48% in 2020). This year’s results also show that only 32% of respondents have had their income tax verifications finalised in 1 – 3 months, which is a sharp decline from 49% in 2020, and 43% in 2019.
VDP: The VDP facilitates a process in which taxpayers voluntarily disclose prior defaults or understatements and make full disclosure of their tax affairs, thereby relieving SARS from engaging in time-consuming audits. This year, 40% of survey respondents said they had made use of the VDP process, a decrease from 46% in 2020. Only 27% of taxpayers reported that their VDP was finalised within three months, while 21% stated that their VDP application was finalised more than 12 months later.
Rossato adds:
“Although the turnaround time for finalising VDP applications remains slow, we hope to see a continuation of the use of this process. It is noted that there is still a strong call from respondents for SARS to issue an Interpretation Note on the VDP (84%, as compared to 73% in 2020).
“It is also encouraging to note that SARS’ interpretation notes are used by taxpayers and that they find them helpful. Providing guidance up front could lead more taxpayers to utilise the VDP process, resulting in further benefits to SARS.”
SARS’ delivery process: More than half of survey participants (2021: 57%; 2020: 47%) believe that the SARS Service Charter makes ‘no difference’ to the quality of SARS’ service delivery. The majority of respondents (97%) believe that SARS’ official key performance indicators should be linked to the Service Charter in order to incentivise improved performance by SARS officials.
COVID-19 measures: Half of the respondents believe that SARS and National Treasury has not done enough to assist taxpayers with tax relief during the pandemic and lockdown to relieve liquidity and promote business continuity. Twenty-five percent of survey participants stated that they reduced or discontinued PAYE payments and 20% discontinued or reduced their provisional tax payments.
SARS’ delivery process during the COVID-19 pandemic: When asked whether SARS was equipped to handle their company’s queries or service-related issues during lockdown, only 4% of respondents felt that SARS was ‘always’ equipped and 32% believed that SARS was ‘never’ equipped to handle their queries, which is cause for concern.
Taxpayer behaviour: The survey analysed respondents’ responses to questions concerning deterrence, complexity of the tax system, and fairness and trust, each of which influence taxpayer behaviour and the tax authority’s success in collecting revenue.
The majority of respondents (92%) believe that it is ‘somewhat likely’ or ‘extremely likely’ that they will be audited by SARS during the tax year. This is an increase from 89% in 2020. This increase is expected to lead to increases in future tax compliance, all else being equal.
Trust in government and the tax authority itself matters for compliance. It is notable that 67% of respondents stated that public trust has not being restored in SARS. Only 16% believe that it has been restored.
PwC recently unveiled The New Equation, its landmark global strategy which responds to fundamental changes in the world. The New Equation focuses on two interconnected needs that clients and businesses face in the coming years: First, the world is changing at an unimaginable pace, and no entity is immune to disruption. Second, trust is the underpinning of everything we do and everything our society is built upon.
“Trust has never been more important, nor more difficult than now. Organisations increasingly need to earn trust across a wide range of topics that are important to their stakeholders. Success depends on fundamental shifts in the way executives think, organisational culture, systems, and ambition,” comments Rossato.
Lastly, with the revitalisation of the high wealth individual taxpayers’ unit , survey participants were asked if they believe this revival and renewed focus on high income earning taxpayers will assist in closing the tax gap. Less than half (47%) believe it would, 36% said it wouldn’t and the remaining 16% indicated that they ‘somewhat’ believed this measure would assist in closing the tax gap.
The way forward
Survey participants were asked what they think SARS should do to improve its service to taxpayers. This year, 18% said that SARS should improve the technical skills of its officials, as opposed to 55% last year. Similarly, to last year, 23% of respondents believe SARS should employ more staff and improve turnaround times, and 22% (2019: 51% 2019) stated that facilities to communicate with SARS should be improved.
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