ON APRIL 1 2012 the Minister of Finance issued a media statement setting out the preliminary outcome of revenue collected for the 2011/12 fiscal year. The 2012 February budget set the South African Revenue Service (SARS) a revenue target of R738,7bn. The Minister reported that SARS collected R742,7bn, which is R4bn more than the revised revenue estimate in the 2012 budget.
Gordhan indicated that the levels of compliance with fiscal legislation had continued to improve and that SARS will enhance its efforts to create a climate that is conducive to full compliance by all taxpayers. He launched the SARS Compliance Programme, a high-level overview of SARS’ plans for the next five years to enhance the levels of compliance with tax and customs legislation.
This is the first time that SARS has publicly released a document setting out areas that will attract attention over the next five years to ensure that those identified sectors of the economy are complying with their fiscal obligations.
In the document released by the Minister it was pointed out that the individual tax register has increased from 1.7-million individuals in 1994 to 6-million in 2010. The number of individuals on the register is likely to increase further still as a result of the requirement that all persons in formal employment must register for tax purposes. Previously individuals earning less than R60 000 a year were not required to register and submit tax returns to SARS.
The Quarterly Labour Force Survey for the third quarter of 2011 indicated that there were about 13 318 000 persons employed in SA. If it is assumed that persons in informal employment were not previously registered for tax purposes, consisting of about 6-million people, this would still mean that there are about 1 318 000 persons in employment, deriving income, who are not registered for tax purposes.
SARS, therefore, intends to enhance compliance by focusing on particular sectors of the economy to ensure that persons who are not registered for tax purposes are identified and become registered.
SARS has indicated that it will focus on seven broad areas over the next five years. SARS has advised that it will concentrate on wealthy South Africans and their associated trusts.
|Wealthy individuals who are not registered|
for tax purposes will be identified and targeted
It has noted that some wealthy individuals are not registered for tax and it will use third-party data consisting of information sourced from financial institutions and credit bureaux, as well as details of residential and holiday homes, aircraft, vehicle and boat sales, to identify such individuals for registration.
SARS will also seek to utilise the provisions of tax information exchange agreements that have recently come into force with a number of countries to identify foreign assets and income.
Furthermore, SARS will concentrate on large business and transfer pricing, and intends to recruit more specialised staff to concentrate on the transfer pricing arena, which will also operate with other tax administrations. In addition, SARS will focus on international tax compliance and review income declared for the payment of provisional tax.
SARS has identified that compliance within the construction sector is apparently low. As a result, SARS intends conducting extensive audits in that industry, with particular focus on persons awarded government tenders. SARS will concentrate on filing, declaration and payment behaviour for corporate income tax, value-added tax (VAT) and employees tax (PAYE). It has been specified by SARS that it will focus on contractors and various levels of subcontractors in paving, decorating, plumbing, heating and ventilation, and ceilings and floors.
SARS is concerned about the trade in illicit cigarettes, which reduces tax collected on the sale of legitimate cigarettes. SARS will undertake a larger number of audits to identify such illicit cigarette sellers.
In addition, SARS has identified the undervaluation of imports in the clothing and textile industry as an area of concern. SARS will seek to co-operate with other government agencies and industry stakeholders to enhance the levels of compliance in this industry with a view to increasing inspections on textiles and clothing imported into the country.
In its Compliance Programme SARS has indicated that it will pursue the regulation of tax practitioners and trade intermediaries. It is SARS’ intention that all tax practitioners and trade intermediaries are persons of good standing, who themselves comply with the fiscal laws of the country and provide a high-quality service and advice to their clients.
SARS has advised that it will develop a rigorous risk profiling system to identify high risk practitioners and trade intermediaries. Gorhan's statement pointed out that most tax practitioners are indeed compliant and play a positive role in enhancing compliance in SA.
SARS has indicated that tax practitioners in South Africa have about 18 400 personal tax returns outstanding and are indebted to SARS to the order of R260m.
It has therefore been proposed that SARS will release legislative proposals to regulate tax practitioners in 2013. It is appropriate to point out that on July 15 2008 the revised draft Regulation of Tax Practitioners Bill was released by SARS for comment.
The Regulation of Tax Practitioners Bill was, therefore, under discussion, yet nothing has happened in this area for the past four years, although it would now appear to be a priority for SARS. SARS has also indicated that many tax practitioners do not belong to a professional body and this results in those practitioners not being bound by a code of professional conduct.
It is intended that this should change. Currently, SARS may file a complaint with a tax practitioner’s professional body where that practitioner has not adhered to the provisions of the Income Tax Act, in accordance with section 105A thereof. It does not appear that SARS has utilised those provisions in taking action against defaulting tax practitioners.
Finally, SARS has indicated it will concentrate on small business, as a result of the fact that registration in that sector is low. SARS is also concerned about small business abusing the VAT system, where businesses charge VAT to customers but fail to pay it over. Where taxpayers have not complied with their obligations it is important that they approach SARS and regularise their affairs before SARS identifies such persons. SARS will usually deal with persons approaching it more leniently.
A further concern is the manner in which the tax collected by SARS is used by the government. The Minister of Finance, in his media statement (referred to above), issued an assurance that every effort will be made by the government to monitor the use of tax contributions paid by taxpayers and to ensure that such funds are used wisely. Gordhan has undertaken to use every effort to fight corruption and the abuse of public funds.
The question that arises is whether the tax collections required by the government would be as high as they are were corruption and abuse of public funds reduced.
■ Dr Beric Croome is a tax executive in the tax division at ENS. This article first appeared in Business Day, Business Law and Tax Review, May 2012. Free image from ClipArt