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Corporate taxpayers pulling their weight easy targets for Sars

Growing frustration that non-compliant smaller businesses are getting off scot-free.
Corporates win disputes with Sars then often spend years trying to claim refunds, which the Law Society likens to a permanent interest-free loan from taxpayers to Sars. Picture: Moneyweb

While many South African businesses are either not registered for tax or are paying next to no tax, the South African Revenue Service (Sars) is taking a shotgun approach to attacking large tax-compliant corporates, which it seems to see as easy targets.

Sars appears to be directing its resources towards corporates that are already paying tax at the rate of 28% and are not aggressively structuring their tax affairs. Surely it would make more sense to go after the multitude of smaller businesses that are not registering for tax or not paying tax at all?

It has become standard practice for major corporates in South Africa to employ dedicated tax managers who spend between 50% and 80% of their time dealing with multiple queries from multiple Sars offices.

It is never-ending; a continuing flow of queries, requests for information, notifications of audit, objections and appeals – before the ‘real litigation’ process even begins. Often, a client will have up to 10 concurrent Sars queries on related issues pertaining to overlapping years of assessment from different branches of Sars that are not talking to one another. When clients describe what is happening, they say ‘We are under siege.’

More often than not, some of these queries come down to nothing more than a timing difference, if indeed there is any actual alleged problem identified by Sars.

Dim view of bad and doubtful debts

An example is ‘bad’ and ‘doubtful’ debts – Sars will typically insist that claims should apply to a tax year other than the one for which the taxpayer has claimed a deduction or allowance. Sars will then charge interest and massive penalties.

This year’s legislative changes may bring more certainty, with set percentages of impairment losses being claimable in the future. However, these allowances are substantially less than the actual economic loss suffered by taxpayers, resulting in overpayments of tax in earlier years, which the Law Society of South Africa likens to a permanent interest-free loan from taxpayers to Sars.

Corporates spend enormous amounts of unproductive time and money fielding Sars queries and dealing with disputes. A single dispute can easily span between six years and a decade, from the date of the first request for information from Sars to the date on which judgment is handed down by the Supreme Court of Appeal.

But even winning a dispute can be a hollow victory. When corporates win disputes with Sars, they have to spend years fighting to claim refunds that are delayed for no reason. It’s incredibly frustrating.

The perception that South Africa’s major corporates may not be pulling their weight when it comes to paying tax is lopsided. Corporate tax is expected to contribute R231.2 billion to the tax revenue target of R1.345 trillion this year, according to the 2018/19 budget summary document.

Corporates shy away from aggressive structuring

Many corporates are good taxpayers, have good relationships with Sars, and are willing to come to the party and pay a fair amount of tax.

A fair amount of tax does not mean the maximum amount that it is possible to pay, however. It means a reasonable, balanced amount. Yet corporates tend to shy away from paying both too little and too much tax.

There are many tax-structuring products that are marketed by really aggressive financial planners. Our experience is that many clients are not comfortable with these products. For every aggressive product that is marketed, there are a number of corporates that turn them down.

With Sars’s seemingly unrelenting focus on corporates that are largely compliant, though, there is growing frustration that non-compliant small businesses are getting off scot-free. In addition, with public attention on corruption and misuse of taxpayer funds, and the ‘capture’ of Sars, taxpayers have become disgruntled.

It feels as if we have reached a stage where paying tax is voluntary and those who volunteer are penalised.

The time has surely come for Sars to broaden the tax base and go after the taxpayers that are unregistered or underpaying.’

Kelly Wright is a partner at Bowmans.

COMMENTS   16

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The same is happening to middle class taxpayers. Beware if you claim for a home office, travel, medical expenses or declare rental income.

Year after year clean audits but the harassment continues. Like Eskom there are too may people adding no value and collecting salaries.

Seems that the middle class gets audited every year.

Yet we had state capture, mansions in Dubai and none of these people were audited or jailed???

“…none of these people were audited or jailed?”

Well, obviously not. The previous SARS Commissioner, Mr Tom Moyane, did not deem it necessary.

(…and from there, it just worsened the public’s tax morality)

I regard very aggressive avoidance structures as my civic duty i.e. I lesson the amount of money these gangsters can steal. It’s my small way of contributing to the country’s well being. I then circulate this money via school / varsity fees, savings, personal security, medical aid, investments, goods and services within SA. Some of which my tax money should pay for but doesn’t. I really don’t like paying for things twice. I’m not stealing, I’m just stopping thieves from stealing from me. Its my own little tax boycott. I regard it as eminently sensible. Is there a risk attached? Maybe. I’d rather lawyer up and fight them than hand it over easily

Your actions bear elements of what is known as a “tax revolt”.

(A tax revolt is not always a direct refusal to pay tax, but take on various forms of taxpayer resistance, incl. querying every little thing with SARS, to exhaust their resources. I hope no-one follows your example, as it will make SARS/Govt’s work almost impossible! That’s where acting SARS commissioner, Mark Kingon, during the recent tax indaba begged the public & practitioners “let’s stop this nonsense” and work WITH Sars….)

2 way street that, doesn’t sound like SARS is working with corp orates.

I can remember doing vacation work for PWC during my studies. I was involved in the preparation of tax returns, my hometown was a smallish town so I knew most of the farmers, doctors, lawyers and businessmen that we were preparing returns for. I was just astounded at how little these people were earning according to their tax returns. I just found the massive houses, German cars, bejewelled wives and spoiled children very puzzling – seeing that they normally earned just around the primary rebate level… The of course they run most of their personal expenses through the company accounts so they pay no VAT either.

Time to go after these guys – will lift the tax burden on middle class and the poor. We often forget that the poor still pay a lot of VAT because they need to spend 100% if not more of there meagre earnings and not everything they need to buy are zero rated.

It is nothing short of criminal that an old pensioner living of her social grant of R1500 or whatever it is needs to pay 15% tax while rich businessman pay no tax – some are even cheeky enough to run continous asssesed losses…

SARS is targeting medium-sized entrepreneurial companies – VAT refunds are withheld, and tax clearance certificates when cash flow becomes a huge problem. Small business the engine of growth???

Over the years, I’ve known quite a few small businesses that pay no tax at all and have no intention of doing so. SARS does nothing asbout it simply because it involves hard work. I recall a person who worked for SARS telling me that, in Durban, a register was compiled of all taxi registration nos from street surveillance. The owners of the taxis (none of whom were registered for tax) were then approached and requested to submit income assessments. Only about 10% replies were received and none of them were above the tax threshold. No further action was taken. SARS are afraid to confront the taxi industry as the latter implies extreme violence. Much easier to hit the PAYE employees and corporates. Violence and street protests are the solution to income tax problems.

Rather like the imbalance of those who can be found and harrased to pay the mindless ” TV licence” / tax vs those who still watch, won’t pay and know damnned well they won’t be found!?

While errant taxpayers and tax practitioners are heavily penalised, there is no disincentive against rogue SARS employees. Indeed, when criticised by the Ombudsman for delaying VAT refunds, SARS had the chutzpah to argue that — after happily deducting VAT payments from a taxpayer’s bank account, possibly for years — when it came to a refund, they had to verify that self-same bank account.

Part of the problem is caused by SARS employees receiving commission on collections. Many tax practitioners are complaining that it is taking far longer to finalise clients’ affairs than previously; most earn their living by selling time, raising the question of how much to pass on to the client and how much to absorb. In other words, SARS is actively destroying wealth. Some taxpayers are relocating their registration or profits to other jurisdictions out of frustration.

If rogue SARS employees were penalised the same way as taxpayers and tax practitioners, one may bet that a lot of the problems would disappear.

Same like traffic fines…it’s the law abiding citizens that are targeted because they always pay!

Reminds me of a senior Durban traffic officer who mentioned that that the easy targets are Indians when issuing fines. They just pay up. With whites they problematic because they write letters or go to court challenging the fines. With coloureds they generally have no money and with the blacks they are unable to trace the drivers or the Municipalities do mot pursue collecting the fine for they fear protest action especially from the taxis.

Register your company in Mauritius…only 15% corporate and personal tax and you don’t get hounded for it…
Plus you get to catch a tan!

SARS is notorious for hitting ‘easy’ targets. My personal experience of having to submit proof of RA Fund contributions year after year when SARS could quite easily refer to a previous year to see that my claims have always been supported by documentation.

My own personal experience of having been employed by SARS as part of an audit investigation division backs up much of what the author of the article has stated. Under declarations by registered taxpayers – both self-employed (sole proprietors) or operating through a PTY or a CC is extremely common and once detected gives SARS the authority to go back any number of years and look at the past history of the taxpayer. Raising additional assessments with the related interest and penalty charges and possible criminal prosecutions will go a long way to reducing the number of taxpayers who think taxpaying is voluntary.

Experienced and qualified persons in the art of tax audit investigation would, in my experience, bring in revenue for the taxman well in excess 10 times the annual cost of their employment to SARS.

So what are you waiting for SARS? You should be resourcing the divisions closed down by the recently ‘fired’ Commissioner with experienced people who were relieved of their posts because they were either ‘surplus to requirements ‘ or ‘past their sell-by dates’.

Sars officials should just go to the Durban Vodacom July and pick up the tax delinquents easily.

End of comments.

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