Professional accountants had their say at the Nugent Commission of Inquiry into the South African Revenue Service (Sars) last week, with various professional accounting bodies making representations.
First up was Etienne Retief, tax practitioner and chair of the National Tax Committee for the South African Institute of Professional Accountants (Saipa), which has over 10 000 members.
Retief explained that it is essential for a large multinational company to have a contact person at Sars, a key-person they could engage with, who could deal with matters effectively and efficiently. When the Large Business Centre (LBC) was disbanded, that person became anyone. Gone was the key-person who would take ownership of the matter. The process became inefficient and ineffective. Waiting for a matter to be dealt with at a Sars branch, a tax clearance for example, could result in delays, causing a “huge cash flow impact”. Further, a financial director could spend four or five hours at a branch doing verifications.
Saipa must now engage with Sars officials who aren’t well versed in the legislation – and “the skill level just isn’t there.” Tax practitioners cannot get answers from Sars, and taxpayers are becoming frustrated. “When something goes wrong Sars is quite happy to take your money, but when there’s a problem they’re not so quick in helping to resolve the problem.”
Retief provides an example of a simple VAT audit that took a very long time. Even when data was provided, it had to be explained to Sars. This still resulted in an incorrect assessment. “The letter of findings is fraught with errors in understanding how periods are allocated, confusing things like tax and financial periods.” The incorrect assessment was not resolved by the disputed assessment, and the matter ended up in the Tax Court. And this was a simple VAT issue – “not complex, not at all complex.”
Retief further said that Sars failed to understand that cash flow is a critical issue. Auditors have the impression that a large company should not be short of cash.
Retief confirmed that consulting firm Bain & Company, which was involved in the controversial restructure of Sars, did not confer with Saipa.
Professor Piet Nel, head of the School of Applied Tax at the South African Institute of Tax Professionals, represented the SA Institute of Tax Practitioners (Sait). Nel informed the commission that Sait and the SA Institute of Chartered Accountants (Saica) carried out surveys among their members. According to the surveys, the general feeling is that supporting documents are requested for more than 50% of the returns that are submitted. Often there is no perceived risk.
Nel agreed that there is definitely a capacity issue, and gave an example where Sars did not have anyone to facilitate an alternative dispute resolution (ADR) process. He was of the view that the recently published Sars Service Charter may force Sars to stick to the given timelines, which will reduce the current delays in finalising an audit. Audits have dragged on for months and months before coming to an end. Unfortunately, the service charter cannot address apathy or the skills shortage.
Even though Sars provides information on its website as to how to resolve a dispute, this does not happen in practice. “I believe that there is now a trend by large businesses to proceed to court rather than attempt to try and engage with Sars to resolve their disputes,” says Nel.
Saica, which has more than 44 000 members, was represented by Peter Farber, the senior executive for tax. He was asked to comment on whether the closure of the LBC had any impact on delays in paying out refunds, the failure to adhere to dispute timelines, the non-response to taxpayer queries and revised tax assessments without notice. He was unable to specify whether the closure of the LBC had made any difference on paying out refunds as that had been an ongoing concern since 2012. He did note, however, that there were more systemic errors in the e-filing system relating to disputes, and that engagement with the executive level of Sars had declined over the last few years.
All agreed that the dissolution of the LBC meant that Sars had lost its connection with large business taxpayers.
In a media release issued on Friday, Sars announced that it is re-establishing the LBC and the illicit economy team. Abracadabra is as good a magic word as any to magically recreate these fractured and dissipated units.