SIKI MGABADELI: Electronic tax filing and payments were the most common tax reforms undertaken by countries worldwide during the past year. That’s according to the latest edition of the Paying Taxes report from the World Bank Group and PriceWaterhouseCoopers. We are unpacking the report now with Kyle Mandy, who is tax policy leader at PwC South Africa.
Kyle, thanks for your time this evening. Let’s just look at exactly how the report is compiled. What exactly do you look at?
KYLE MANDY: Well, as you have already alluded to, the Paying Taxes study forms part of the World Bank Doing Business report. What we do in terms of the Paying Taxes report that we issue aside from the World Bank, is to trawl down a little bit and provide a little bit more analysis around the tax side.
So essentially what we do is we use a case-study company which is uniform across 189 different countries, and that allows us to compare apples with apples, if you like. We essentially measure three indicators for the total tax rate.
Now the total tax rate is really all taxes borne by this case-study company, theoretically at least, anyway, and we measure that against commercial profits. Now commercial profits are the profits made by the company before all taxes, including those sorts of taxes that are normally borne above the line, such as property rates, etc. So that allows us to determine an effective total tax rate for the company in each country against those commercial profits.
We then have two other sub-indicators which are there to measure compliance. The first of those is time to comply, which looks at how long it takes to file your tax return for this case study company. The second sub-indicator for compliance is looking at the number of tax payments. So how many payments do you need to make?
SIKI MGABADELI: And it’s interesting – I had a chat earlier in the week with the acting SARS commissioner about the recent provisional taxpayer deadline, everybody having filed, and what I found interesting was the massive decrease that they are seeing in manual submissions. He said out of the close to five million a mere 2 000 people had actually submitted manual submissions. That is quite interesting. Is that a trend globally?
KYLE MANDY: Absolutely. It’s a trend. It’s one of the major drivers behind the reduction in the amount of hours needed to comply and file returns. Not only in the space of individuals – which is what you are alluding to here – but in the case of companies as well. And similarly, when it comes to payments as well, electronic payments allow a substantial reduction in the number of payments that need to be made. And that comes into the way we measure it as well.
SIKI MGABADELI: In what ways does tax reform action assist revenue collection and also just assist compliance by business?
KYLE MANDY: Well, in terms of reducing the amount of time and effort and cost that needs to go into compliance, it promotes improved compliance levels. If you make it easier for companies and in fact all taxpayers to comply, the greater the likelihood that they are going to comply and file returns that they should be filing, and pay the taxes they should be paying.
SIKI MGABADELI: So how do we compare as South Africa overall in terms of the way that our tax system is run to other countries?
KYLE MANDY: South Africa performs relatively well in the rankings. It was ranked 20th when you look at the overall ranking, which is a very good result. It has fallen one place from what the ranking was last year. But the devil, as they say, always lies in the detail. So you do actually need to unpack that a little bit.
So when you look at the sub-indicators, so total tax rate, again South Africa doesn’t do too badly in that regard. It comes in at 38th out of the 189 economies that we are measure. So that’s not a bad result. But even there, again, you’ve got to unpack that a little bit further.
And the trouble is, when you start looking at where we come in from a profit-tax point of view, so that’s the corporate income tax in itself, South Africa doesn’t perform very well. It comes in 135th. The reason why we perform well from a total tax rate point of view but not from a profit-tax point of view is that we have very little in the way of labour taxes and other taxes which impact on companies compared to many other countries.
So that’s not a good result because those profit taxes are the most distortive of all taxes. What I mean by distortive – they have a negative impact on economic activity and investment. So that’s not a good thing insofar as that result is concerned.
If we look at some of the other sub-indicators around time to comply, South Africa doesn’t do too badly. It’s middle of the range. It comes in around 87th out of those 189 different countries. Not too bad, but not great either. So there is room for improvement in that regard.
And the real indicator where it does very well is in terms of the number of taxpayers. There it’s one of the top performers actually ranked 13th, and that’s the major contributor for South Africa, having such a high ranking in terms of the overall measure.
SIKI MGABADELI: We’ll leave it there. Thanks to Kyle Mandy.