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Tax compliance costs in South Africa

Sars’s revenue-collection cost is well within the international norm, says Sharon Smulders, associate professor at Unisa in the Financial Intelligence Department.

NASTASSIA ARENDSE:  The Saica Tax Division released a report titled Total Cost of Tax Collection in South Africa. Professor Sharon Smulders, who is the associate professor at Unisa in the Financial Intelligence Departments, will tell us more about the report.

PROF SHARON SMULDERS:  What they found is that Saica members have been saying that their experience has been that there has been a significant increase in the tax base cost of compliance.

If we look on the other side, if we look at Sars’s annual report for 2015/16, the revenue-collection cost has actually gone down in the past six years. It’s sitting at 0.96% of tax collection. That’s well within the international norm.

But this is only Sars’s cost. Nobody has considered the cost for taxpayers to comply with the tax legislation, and that’s basically what this research sets out to do – to come out with a statistical rand value model to evaluate the rand cost for individuals and companies in South Africa to comply with the tax obligations.

You might ask why that’s important, and then what are tax-compliance costs? I think why it’s so important is that tax-compliance costs actually diminish business resources without raising additional income for the government. This is basically a waste of economic resources. 

But what we’ve also found is that these costs impact individuals’ tax-compliance behaviour and could result in increased tax evasion. The higher the tax compliance cost, the less the actual compliance by individuals; and that’s not what we want. For a fair tax system to operate, the efficiency of the tax system is one of the four critical criteria for any tax system out there. We are not quite sure if that’s the case, or if it’s just a few individuals feeling this way, and we want to gauge whether or not that is actually the truth.

NASTASSIA ARENDSE:  In terms of these tax-compliance costs that you refer to, what do they comprise?

PROF SHARON SMULDERS:  Well, there are basically three broad elements to tax-compliance costs.

The first one is what we call internal costs. That’s the cost where you pay somebody to complete the tax returns, the VAT returns to Sars, etc.

Then you get the other cost, which is external cost. That’s the cost of a company or an individual paying a tax practitioner to assist them with completing their tax return or paying their tax, whatever it may be.

And the third element is what we call incidental expenses, like your software that you use, your tax software, your travelling costs, your telephone costs, your stationery cost – all those little things.

Together those three components – internal, external and incidental expenses, add up to the tax compliance cost that we will be measuring.

NASTASSIA ARENDSE:  What are the benefits of participating in a research such as this?

PROF SHARON SMULDERS:  As I said before, if we can reduce tax compliance costs, or if we pick up that there is a particular problem, not only can that enhance productivity in South Africa, it can actually use these resources to employ more people and we can obviously get more foreign direct investment coming into South Africa, which we critically need.

But I think the big point here is it gives the taxpayer a voice – specifically small businesses and individuals. To try and get your voice heard anywhere in government circles is very difficult. So this is a platform. It’s been spearheaded by Saica, but will be used in the research to show critical evidence of the facts as they are, whatever that may be.

I think it’s also important that we are not only looking at the tax compliance costs but we are also looking at the benefits of tax compliance. So we are looking at the whole holistic picture to say there are certain benefits. And it also may be a good time to give people a chance to commend good service, etc. So we are looking at both sides of the coin.

But the specific thing here is they can actually have their voices heard. So if they have concerns and it’s not isolated, this would be the perfect platform to get their voices out there and have their concerns heard.

NASTASSIA ARENDSE:  And how do listeners get access to the survey once completed?

PROF SHARON SMULDERS:  Currently it’s being run by Saica, but will be sent out by Saica to all its members and representatives on their various committees. If you are not a Saica member, the links to the survey will be available on the Saica website. You can just go into the Saica website and find the little caption about that, click on the link, and you’ll be able to access the survey that way.

NASTASSIA ARENDSE:  Thank you for your time, Prof Sharon Smulders.

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