The South African Institute of Race Relations (SAIRR) issued a press release on January 24 2011, pointing out that the number of registered individual taxpayers in South Africa grew from 3.4 million in 2002/03 to 5.9 million in 2009/10, an increase of 73%. The statistics relied on by SAIRR draws on the documentation released by National Treasury and the South African Revenue Service (SARS), Tax Statistics 2008 and Tax Statistics 2009. The increase represents a healthy improvement in the number of taxpayers in South Africa and goes some way to broadening the tax base.
According to Tax Statistics 2008, there were 814 894 companies on the register in 2002/03, a number that increased to1 878 856 in 2009/10. That is an increase of more than one million companies and close corporations on the tax register, which represents an increase 131 %.
Insofar as trusts are concerned, there were 254 593 trusts on the register in 2002/03 and that increased to 331 954 in 2009/10, an increase of 36%.
It is interesting to note, though, that the number of trusts on the register in 2008/09 was 392 260, and this reduced to 331 954 in 2009/10, a reduction of 15.37%, which would indicate that the number of trusts being created is reducing and, furthermore, that a number of trusts were terminated.
Left: How many people escape the tax net? The question that often arises in South Africa is how many people are currently registered, and how many taxpayers should, in fact, be registered for tax purposes?
More recently, SARS has reported on the number of persons registered for customs purposes and for 2OO8/0 9, 422 636 persons were registered. Importers comprised 228 350 of that total, and exporters 194 286. In 2009/10, the number of persons registered for customs purposes increased to 439 065, which represents an increase of 3.89%. lmporters increasing to 229 442 persons and exporters to 209 623.
It is extremely difficult to determine how many individuals should be registered taxpayers in South Africa and the shortfall between those persons who should be registered, and those that are on the register constitutes part of the tax gap. The tax gap also comprises tax not collected as a result of taxpayers failing to declare the correct amount of income tax. This constitutes criminal offence, which could give rise to a criminal prosecution as well as the imposition of additional tax and interest under the various fiscal statutes.
It would appear that in the 2009/10 financial year, approximately 14 million persons benefitted from social grants funded by registered taxpayers. The continued viability of social grants being paid to some 14 million people, which is funded by a small pool of taxpayers is a matter of considerable debate.
In attempting to establish how many persons should be registered for tax purposes in South Africa, it is appropriate to refer to the Quarterly Labour Force Survey, published by Statistics South Africa, for the third quarter of 2010, which was published on October 26 20I0.That survey indicates a population of between 50 and 64 years of age of some 32 072 000 people and that the labour force, that is, persons in employment, comprises some 17 371 000 persons. The Labour Force Survey reports that:
• 9 043 000 persons are employed in the formal sector, other than the agricultural sector
• 2 172 000 persons were employed in the informal sector, other than agriculture
• 640 000 persons were employed in the agricultural sector and
• 1 119 000 persons were employed by private households.
The survey reports that there were approximately 4 396 000 unemployed persons in the third quarter of last year and that there are 12 669 000 persons who are not economically active. In addition, there were 2 033 000 persons who are regarded as discouraged work seekers. The survey defines “discouraged work seekers” as “persons who were not employed during the period under review, wanted to work or was available to work but did not take active steps to find work during the last four weeks as a result of there being no jobs available in the area, unable to find work requiring their skills or lost hope of finding any kind of work.”
As a starting point, therefore, it would appear that there are approximately 17 371 000 persons in employment in South Africa, whereas 5 920 612 persons were on the register for income tax purposes. It must be noted that those persons who derive remuneration of less than R60 000 a year are not required to register for tax and are subject to Standard lncome Tax on Employees (SITE).
SARS has reported that there are approximately five million formal SITE workers who derive annual taxable income below R60 000 and are, therefore, not required to register and submit annual returns. Thus, the number of individuals paying tax, according to SARS, would amount to approximately 10 920 612 persons. Unfortunately, it is difficult to ascertain how many persons are earning below threshold and, therefore, are not liable to tax at all.
Using the figures in Labour Force Survey of persons employed as 17 371 000 and the total number of persons on register with SARS and paying SITE as 10 920 612, there is an unexplained shortfall of 6 450 388 persons. Part of the difference probably represents those persons who derive amounts below the tax threshold (that is, R57 000 for persons under 65 years of age or R88 258 for persons over the age of 65 years for 2010/2011) and are, therefore, not required to pay tax. However, it does appear that there are a significant number of economically active persons in the country who are not registered for tax purposes.
The Labour Force Survey seeks to identify those persons in some form of employment and would not, for example, include those who are retired and may derive income in the form of pensions, interest or other passive income. It is unclear how many retired persons there are in the country, but a fair number of those would also be registered as taxpayers, by virtue of the nature of the income received by them exceeding the tax threshold.
On May 14 2010, the Financial Mail published a report on community banking and reported statistics on the number of banked adults in South Africa. According to those statistics, it would appear that, in 2009, there were 19 609 384 banked adults in South Africa. It is accepted that even though persons may operate a bank account, they may not be required to register for tax purposes. However, it is an interesting statistic when reference is made to the number of taxpayers currently on the register.
SARS has undertaken various initiatives to encourage persons outside of the tax net to regularise their affairs. In 2003, taxpayers who had not complied with their obligations could regularise their affairs by utilising the 2003 foreign exchange and related tax amnesty. More recently, in 2006, SARS administered the Small Business Tax Amnesty in an attempt to encourage qualifying small businesses to regularise their affairs from a fiscal point of view. Commencing November 1 2010, the legislature introduced the Voluntary Disclosure Relief Programme (VDP), which will allow taxpayers to regularise violations of fiscal legislation and the Exchange Control Regulations. These rules also allow for those not previously in the tax net to regularise their affairs.
Clearly, in the case of companies and close corporations, it is easier to ensure that those entities are registered for tax purposes upon incorporation. Historically, companies and close corporations would automatically be registered for fiscal purposes as a result of information passed from the Companies and Intellectual Property Registration Office (CIPRO), to SARS to ensure registration of those entities for tax purposes. It is unfortunate that CIPRO is currently facing its own administrative difficulties, which may give rise to deficiencies in this regard.
Trusts are administered by the Master of the High Court which, unfortunately, does not operate a computerised system of trusts on register and it is, therefore, difficult to ascertain whether all trusts that have been registered with the Master are, in fact, registered for tax purposes as required.
When reference is made to the number of persons employed in South Africa and the number of banked adults, it is clear that there is a significant number who appear not be registered for tax purposes.
SARS previously conducted “walk-abouts” whereby SARS officials would visit various business centres to ensure that persons who were conducting business were registered for tax purposes. The Tax Administration Bill (TAB) released on October 29 2001, contains clause 40, which will confer on SARS the power to arrive at the premises and inspect the premises to determine the identity of the person occupying those premises and to establish whether that person is conducting a trade or an enterprise from those premises and, more importantly, whether the person occupying those premises is registered for tax purposes. The clause does not require SARS to make a prior arrangement with the occupier and confers on SARS officials the power to arrive, without prior notice, to ascertain whether the persons conducting business from those premises are, in fact, registered for tax purposes.
It is important that SARS, taking account of the statistics referred to, undertakes a programme of education to ensure that people become aware of their fiscal obligations. This programme of education should commence at schools. It is important that the tax base is broadened, thereby ensuring that the tax burden is spread among a far greater number of persons than is currently the case and thus allowing the state to meet its social objectives.
It is critical that the tax revenue which is collected is efficiently spent and that wastage is reduced to a minimum.
* Croome is a Tax Executive with Edward Nathan Sonnenbergs. This articles first appeared in the March 2011 edition of "Without Prejudice"
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