THE financial year for government came to an end on March 31 and taxpayers have become accustomed to the month of March being a month during which the Commissioner of the South African Revenue Service (SARS) seeks to collect as much tax as possible in order to meet the collection targets specified in the National Budget.
SARS issued a press release on April 1 which indicated that by midnight on March 31 SARS had collected R674,2bn in tax revenue, which was R2bn higher than the revenue budget set in the 2011 budget in February.
The increase in tax collected represented nominal growth in revenue of 12,6% or R75,6bn more than the previous fiscal year. SARS exceeded its collection target is to be commended.
However, a question that must be asked is whether the continual increase in tax collected is sustainable, taking account of the narrow tax base in the country.
According to Tax Statistics 2010, published by SARS, the number of registered individual taxpayers increased from 4,1-million in 2004/2005 to more than 5,9-million in 2009/2010.
SARS has previously reported that there are about 5-million SITE workers who derive an annual taxable income below R60 000 per year and are therefore not required to register and submit tax returns. Therefore, the number of individuals paying tax, according to SARS, amounts to about 10 920 612 persons.
It is difficult to determine how many individuals should be registered as taxpayers in SA and the shortfall between those persons who should be registered and those who 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 subject to tax — this constitutes tax evasion and is illegal.
It would appear that in the 2009/10 financial year about 14-million persons benefited from social grants funded by registered taxpayers. In attempting to establish how many persons should be registered for tax purposes it is appropriate to refer to the Quarterly Labour Force Survey, published by Statistics SA, for the third quarter of 2010 which was issued on October 26 2010. That survey reported that 17 371 000 persons were in employment. Comparing the number of persons in employment per the Labour Force Survey of 17 371 000 persons and the number of persons paying tax of 10 920 612, there is an unexplained shortfall of some 6 450 388 persons.
Part of the shortfall probably comprises those persons who derive amounts below the tax threshold 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. SARS has undertaken various initiatives to encourage persons outside of the tax net to regularise their tax affairs and to broaden the tax base.
Left: SARS officials are so focused on the collection of tax in the month of March they do not attend to other matters such as objections and appeals or finalising refunds. Taxpayers find the delays and waiting frustrating.
The fiscal statutes regulate the timing of payment of tax by taxpayers but unfortunately certain SARS officials seeking to ensure that the collection target is met do not always adhere to those principles.
We are aware of a number of cases where taxpayers were, for example, contacted on March 3 by SARS to enquire when payment would be made on an assessment issued which contained a payment date of March 31. Clearly, under the provisions of the law, taxpayers are entitled to pay tax as and when due according to the provisions of the fiscal statutes and not before.
In other cases SARS sought to encourage large employers to pay Employees ’ Tax (PAYE), which would under the law be due on April 7, no later than March 31, thereby ensuring that the cash was accounted for in the collection target set for March 31 2011. The manner in which certain officials conducted themselves would tend to indicate SARS officials are participating in bonuses based on the collection target set in the budget.
Where a taxpayer has lodged an objection or an appeal, that taxpayer is entitled to request a postponement of payment of tax under section 88 of the Income Tax Act or equivalent provision in another fiscal statute. Recently, the rules governing the postponement of tax pending an objection or appeal were clarified and taxpayers now need to satisfy certain criteria to ensure that a deferral of tax in dispute is granted.
Unfortunately, it does not appear that the different branches at SARS are aware when taxpayers have applied for the deferral of payment of tax in dispute. We encountered a number of instances during March where SARS officials were demanding payment of tax even though the taxpayer, having noted an appeal or objection, had requested a deferral of payment.
It appears that SARS officials become totally focused on the collection of tax in the month of March and do not attend to other matters affecting taxpayers such as objections and appeals or finalising refunds payable to taxpayers. Many taxpayers awaiting refunds in March were informed that those refunds would not be finalised prior to March 31 and that those refunds would only be released after April.
Difficulties taxpayers encountered with SARS officials seeking to collect tax during March often included SARS officials, who were unaware of the taxpayer’s full circumstances and who did not have access to the taxpayer’s records on the SARS system, calling for payment of tax before it was legally due.
International research has shown that where taxpayers are treated fairly they are more likely to adhere and comply with the fiscal statutes in a particular country. Therefore, where officials choose not to adhere to the constitutional provisions or SARS Service Charter in their interactions with taxpayers, such conduct undermines the levels of taxpayer compliance that may be experienced in the future.
Clearly, where taxpayers are indebted to SARS and fail to pay timeously SARS has substantial powers in the fiscal statutes to ensure that the tax is paid over promptly. Taxpayers, therefore, need to meet their obligations to pay their tax as and when it falls due to SARS. However, at the same time, SARS, when collecting taxes from taxpayers, needs to adhere to the standards set out in the Service Charter and contained in the bill of rights.
It is also important that the tax base is broadened by increasing the number of taxpayers on register, thereby ensuring that the tax burden is fairly shared by citizens of the country and that those taxpayers who are on register, but who do not comply with their fiscal obligations, are brought to account. In addition, taxpayers need to be satisfied that the taxes they pay to the state are properly utilised in uplifting the lives of all South Africans and are not wasted.
■ Dr Beric Croome is a tax executive at ENS. This article first appeared in the Business Day Business Law & Tax Review (May 2011.) Free Image from ClipArt.