Cape Town - The South African Revenue Service (Sars) has been conducting more audits and has had frequent applications of penalties as it seeks to keep up with the ever increasing national Budget in a strained economy.
This is according to professional services firm KPMG, which recently conducted its global tax disputes benchmarking survey.
Roula Hadjipaschalis, the director for corporate tax and legal at KPMG SA, said the results of their survey indicated that the majority of respondents were experiencing increased difficulty in reaching resolutions with the tax authorities, with the South African situation more pronounced.
She attributed this to increased aggressiveness by Sars with it expecting taxpayers to concede substantially all of the tax in dispute.
“With regard to the South African respondents, every single one of them noted that they had received more requests for information (which signals the beginning of a tax audit), more audits, a greater use of formal powers to obtain information, more aggressiveness in raising assessments and more frequent application of penalties,” said Hadjipaschalis.
KPMG’s global survey was based on a study of 270 people in charge of the tax functions and operations of companies in all major industries based in 35 countries worldwide.
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The study found that behaviour was changing among tax authorities worldwide, with feedback suggesting tax executives were finding tax administrations increasingly difficult to deal with.
About 54 percent of respondent companies have a budget for managing tax disputes, with 40 percent of these respondents saying their budget for managing tax disputes was more than 10 percent of the tax function’s budget overall.
Only 30 percent of the respondents utilise technology to monitor the number and nature of their organisation’s tax disputes globally and only one-quarter of these respondents use a disputes-specific software platform.
However, 40 percent of the respondents said they expected their use of technology for managing and monitoring tax disputes to change in the next two years.
Big transactions
Hadjipaschalis said it was worrying that Sars was also auditing large transactions that were more than three years passed from the date of assessment and using that to disrupt business dealings.
“Sars is using increased powers in terms of the Tax Administration Act to achieve this and it is affecting commercial transactions that large corporates are planning (eg say a listing) until the disputes with Sars are resolved.”
Sars has been under pressure to collect sufficient revenues to meet the requirements of the national Budget after it revised down its revenue collection estimates from R1.175 trillion in February 2016 to R1.114 trillion in February this year, a downward revision of R30 billion.
This was the second multibillion shortfall since the R60 billion downward revision in the 2009/10 financial year.
It said last week that personal income tax (PIT), corporate income tax (CIT), VAT along with customs and excise in aggregate remained the largest sources of tax revenue and represented about 94.5 percent of total tax revenue collections.
The largest contributor was PIT, which accounted for 37.2 percent of total revenue, followed by net VAT contributing 25.2 percent and CIT collections were 18.1 percent. Customs and excise collections contributed 27 percent to collections.
The financial services sector remained the largest CIT contributor to total net revenue at 49.7 percent, reflecting a year-on-year growth of 7.4 percent.