Stabilising public debt: note the tax implications
JOHANNESBURG - In brief, the information published by the National Treasury in the Supplementary Budget said:
- The Covid-19 pandemic has led to a sharp deterioration in the economic and revenue outlook. The fiscal position, which was already unsustainable, will require significant adjustments as the immediate health effects subside.
- In 2020/21, the consolidated deficit is projected to increase to 15.7 percent of gross domestic product (GDP). If this trend is not reversed, South Africa is likely to face a sovereign debt crisis.
- The government remains committed to achieving fiscal sustainability. Over the next several months, the government will prepare fiscal consolidation proposals that will be published in the October Medium-Term Budget Policy Statement (MTBPS).
- Gross national debt is expected to reach 81.8 percent of GDP in the current year.
- From a tax perspective, what is noteworthy from these statements is that there will be an increased focus on improving tax collection and administration. These are essential elements in achieving fiscal stability.
- The SA Revenue Service will aim to increase tax receipts by inter alia:
- Focusing on international taxes, particularly aggressive tax planning using transfer pricing.
- Increasing enforcement to eliminate syndicated fraud related to value-added tax refunds and import valuations.
- Expanding the use of third-party data to find non-compliant taxpayers.
- Improving the collection of debt due to the fiscus, and ensuring that outstanding taxpayer returns are filed and liabilities paid.
If this is a not an explicit warning, I don’t know what is.
I urge companies and their audit and risk committees (Arcs) to re-evaluate and stress-test their tax risk-management policies.
Arcs will have to ensure that all tax returns are filed and that their filing positions are well documented and based on sound principles and assumptions and, where necessary, are supported by independent opinions.
If you are in any of these categories and have outstanding tax returns, the tax litigation will increase exponentially. From a tax consulting practice perspective, we'’ve already seen the start of this.
The time for seeing tax compliance as a low business risk is over; the ship has sailed, and you had better have your lifeboat lowered and oars in the water, and make sure that you have the strongest team of rowers in the boat if you are to weather the tidal waves that are about to hit.
Tax compliance and tax collection are the easiest ways for the government to alleviate, to an extent, its reliance on foreign debt. To pave the road to fiscal discipline, it has to fix the tax-collection system.
It does not take a rocket scientist to figure out that if you collect what is due, the levels of borrowing can be reduced to ensure that the relief measures announced can be financed.
Willem Oberholzer CA (SA) is a tax director at Probity Advisory.