PwC has released the results of its 2019 survey, titled Taxing Times 2019, based on the feedback received from 162 corporate clients.
The aim of the survey was to gauge the respondents’ experience in dealing with Sars, which can be used to engage with Sars in a constructive manner. The overarching objective is that of improving efficiency, trust and credibility.
Sars is building from a low base. The service charter, which outlines the rights and obligations of taxpayers as well as the service levels and time frames that Sars must meet, was published in July 2018. There was much anticipation by Sars at the time that this would improve the overall experience that taxpayers have with Sars.
The 2017/18 Annual Report of the Tax Ombud released in October 2018, indicated that the number of complaints referred to the Ombud had “grown exponentially”.
The final report issued by the Nugent Commission of Inquiry, released in December 2018, contained a number of recommendations to be acted on by Sars. The lowest level was reached when Sars missed its 2018 revised revenue target by R15 billion.
Commissioner Edward Kieswetter was appointed on May 1, 2019. Within four months he has been active, including suspending five executives. Of the 162 companies surveyed, 43.2% were multinationals, and 19.1% were large companies operating locally. Included in the industries covered were financial services (24.1%), retail & consumer (12.3%), energy, utilities & mining (8%), industrial manufacturing (8%), automotive (6.8%) and mining (6.2%).
Verification and audit of income tax returns
The survey reveals that 86.9% of respondents were of the view that they would be selected for an audit or a verification of information after submitted the income tax return. A greater number of respondents (95.2%) thought that the requested criteria met the requirements outlined in the Tax Administration Act. Sars has become more accommodating (94.2%) in granting requests for an extension.
The service charter requires Sars to complete a verification exercise within three months. This time frame was met by Sars 42.9% of the time, 32.2% said that it took Sars three to six months of the time, and 12.3% said it took Sars six to twelve months of the time.
The survey shows that 10.4% of respondents claimed that Sars finalised an investigative audit within three months, 25.9% claimed that this was done within three to six months and 23% claimed that this was achieved within 12 months. Around 19.3% of investigative audits took more than 18 months.
The lengthy duration of audits results in additional costs for taxpayers, as well as uncertainty. What are the reasons for this delay? Is Sars incapacitated, lacking in skills, or are some of these matters very complex?
Sars is required to issue progress reports during the audit process. Only 4.3% reported ‘always’, 15.7% ‘most of the time’ and 47.1% ‘sometimes’. More damning, 32.9% reported ‘never’.
The taxpayer must reply to the Audit Findings Letter (issued on finalisation of the audit), within 21 days of receipt. Does Sars apply its mind in considering the taxpayer’s response? The situation has improved from 2018. The survey shows that 58% of the participants responded that Sars had reconsidered the position on receiving the Letter of Response (2018: 22%).
Most respondents suggested that the provisions of reasons for an assessment remain inconsistent.
Around 16.3% of respondents maintain that Sars never gives sufficient grounds to understand the basis of the assessment raised, and 58.9% say that Sars sometimes gives adequate grounds.
Around 70.2% of the respondents were of the view that Sars is overly aggressive in applying understatement penalties. Does the pressure to achieve revenue targets have some influence?
Vat – verification of information and audits
PwC is of the view that it should become apparent over time whether the information submitted by a vendor is reliable. However, 43.8% of respondents claim that their Vat return is selected for verification every time, and 34.9% of respondents claim that their Vat return is selected for verification whenever the return results in a refund. Sars finalises a verification within 21 days for 60.3% of the respondents, and within three to six months for 34.9% of the respondents. This presents a significant improvement on 2018.
After October 2017, Sars increased transfer pricing risk reviews and ensuing audits. The survey shows that 52.2% of respondents claim that a transfer pricing audit took longer than 12 months, only 15.2% say that the Sars team is focused and comprises transfer pricing specialists, and 26.1% are of the opinion that the relevance of certain documents requested by Sars is unclear.
Around 6.5% of respondents claim that the Sars audit team was “obstructive, aggressive and difficult to communicate with”. Around 46.2% of transfer pricing assessments were settled, 23.1% were litigated, and 7.7% were decided by mutual agreement procedure.
Respondents are of the view that there are signs that the recent changes in Sars are beginning to have a positive impact on client experience. Respondents have identified three key areas in which Sars can improve its services:
- Employing more staff and providing strong technical training;
- Improving facilities to communicate with Sars;
- Reviving the Large Business Centre.
The report concludes that meaningful change can only be achieved if the Sars staff have the necessary skills and training, and commit to the values and undertakings of the Sars service charter.