Corporate taxpayers on their experiences with Sars

Taxing Times 2021 – the report of PwC’s fourth annual survey benchmarking corporate taxpayer experiences in dealing with the South African Revenue Service (Sars) – has been published, with 158 companies participating this time around.

Of the companies surveyed, 28% are in financial services while the other sectors range from 4% to 8%.

A selection of results coming out of the survey is reflected below. The survey included statistics for four years but for brevity only the results for 2018 and 2021 are shown below.

From inquiry to audit

There is a steady year-on-year increase in the number of participants who believe they will be selected for verification/audit.

Participants were asked if the Sars requests for information for the purposes of verification/audit meet the requirements set out in the Tax Administration Act (TAA).

Participants were asked how likely Sars is to grant an extension for submission of the ‘relevant material’.

The average time taken by Sars to complete the verification and the audit process:

Audit administrative processes

PwC noted that Sars must consider the taxpayer’s rights, and follow due and fair administrative process, which includes issuing the taxpayer with progress reports during the audit process. The TAA compels Sars to issue these reports every 90 calendar days. However, 97% of participants said progress reports were not always received from Sars.

Audit findings letter

After the audit is finalised Sars must issue a Letter of Findings, and the taxpayer has (usually) 21 days to respond, “outlining its tax position, and agreeing or disagreeing with Sars”. In 2021, 53% of respondents were of the view that Sars reconsidered the position in favour of the taxpayer, 36% were of the view that Sars reconsidered the position in favour of Sars, and only 11% were of the view that the letter of assessment was identical to the letter of findings.

PwC concluded that this indicates that Sars is considering taxpayers’ submissions prior to issuing letters of assessment.

Other measurements

PwC said 72% of participants reported that Sars is ‘always’ or ‘most of the time’ aggressive in raising understatement penalties.

Read: Sars behaving badly: Revenue service exercised ‘unreasonable discretion’ in disallowing penalty

Sars’s debt collection function runs parallel to the dispute resolution process. A taxpayer can request a suspension of payment, but the ‘pay now, argue later’ principle can only be suspended by a senior Sars official.

The TAA provides for errors of a non-contentious nature to be corrected, which will allow a reduced assessment, but only if the tax return was “erroneous due to a ‘readily apparent undisputed error’”.

PwC remarks that this has resulted in “significant disputes as Sars interprets a ‘readily apparent undisputed error’ very narrowly compared to how a taxpayer might view it”.

Of those surveyed, 27% said their applications were rejected by Sars and 51% said Sars only ‘sometimes’ accepted their applications.

The Vat verification process and refunds

PwC noted that value-added tax (Vat) refunds can “fall prey” to dishonest practices, however, a delay in the receipt of a Vat refund “can cause severe cash flow constraints, frustration and lack of ability to trade to some taxpayers”.

A third of participants said they were selected for audit every time they selected a Vat return or whenever the return resulted in a refund. Only 45% reported that their verifications were finalised within 21 days, a sharp decline from the 65% in 2020 and 60% in 2019.

PAYE challenges

Participants are “encountering greater difficulty in dealing with Sars in relation to PAYE [pay-as-you-earn] accounts” – in 2021 only 13% said they never had difficulties with Sars, 42% ‘sometimes’, 25% ‘most of the time’, and 20% ‘always’.

PwC noted that this could be due to Sars having detected an increase in non-compliance with regard to employees’ tax.

VDP applications

Sars’s Voluntary Disclosure Programme (VDP) was made use of by 40% of participants, with 27% reporting that their application was finalised within three months, and 21% reporting that their application was finalised more than 12 months later. Where Sars denied the taxpayer the opportunity to participate in the VDP process, 38% of applicants said the reason given by Sars was that ‘the application was not full and complete’, and 45% said their application was denied on the “basis of it not being voluntary, due to the taxpayer not being subject to a verification”.

Read: Sars surges ahead with voluntary disclosure overhaul, but is it enough?

Close to one in five participants (21%) did not think the VDP process gave them the required relief, and 84% said that an interpretation note would assist in the drafting and submission of VDP applications.

Sars’s service delivery

Participants were not overwhelmed by Sars’s service charter: only 9% thought it made a difference, 57% did not think so, and 34% thought only ‘somewhat/partially’.

As to whether Sars’s service charter should be linked to the key performance indicators (KPIs) of its officials – 97% of participants said yes (2019: 54%).

Read: Sars service charter delights and disappoints

Participants have a poor perception of Sars’s adherence to time frames – 35% reported that Sars ‘never’ complied, 51% reported ‘sometimes’, 13% reported ‘most of the time’, and only 2% reported ‘always’.

Covid-19

PwC asked participants if the Covid-19 tax relief measures were sufficient, and if taxpayers actually made use of them.

More than half (52%) indicated that they qualified for the relief, 47% were of the view that the requirement that ‘only compliant’ taxpayers could apply was too restrictive, and 50% did not think that Sars and National Treasury had done enough to assist taxpayers with tax relief during the pandemic and lockdown.

Only 4% of participants reported that Sars was ‘always’ equipped to deal with queries during the lockdown, and 32% believed that Sars was ‘never’ equipped.

Of those surveyed, 36% said their business was doing well after the Covid-19 disruptions and 49% said that their business “was starting to pick up again”.

Sars under Kieswetter

PwC reflected that the area of taxation “has evolved as a result of many significant developments” – the most noteworthy being the change in leadership from Tom Moyane, to his replacement Mark Kingon (in an acting capacity), to the appointment of Commissioner Edward Kieswetter. PwC observed that Kingon “managed to improve the relationship between Sars and the Tax Ombud and sought to strengthen voluntary tax compliance”.

Retired Judge Dennis Davis has been appointed to “assist Sars with the implementation of its strategies, specifically those directed at closing the tax gap and the taxation of the wealthy”.

Read: Plugging the tax gap – if Sars can identify it

Kieswetter has “actively restructured Sars to create a flatter leadership structure, to improve tax compliance and to improve service delivery”.

Whereas 67% of participants didn’t think that trust is being restored in Sars, PwC is of the view that “this continued distrust may stem from distrust in wider government”.

The report can be downloaded here.