The South African Revenue Service (Sars) has expressed concern about the level of non-compliance with the submission of tax returns.
In the last five years the number of non-submission of returns for Pay-As-You-Earn (employee tax) has increased by 77% and for Value Added Tax (VAT) by 32%.
Randall Carolissen, head of research at Sars, said when economic growth lags, it is usual to find a dip in compliance. “The valley has however never been as deep as we have seen in the last five years,” he said at the annual Tax Indaba in Sandton.
“In pre-democracy times people used to boast with the fact that they were not paying their taxes. We have moved out of that era and we do not want to move back there,” he said.
In a session addressing the psychology of tax behavior during recession, Carolissen said Sars does not want a case where people resent others for getting away with murder while they try to remain compliant.
Sars should have a “tough and honest engagement” with all taxpayers and shareholders to identify the areas where it fails to meet taxpayer expectations and Sars must deal with it.
The openness of Sars to engage with the people it serves is paramount. It is a fiscal responsibility, he said.
There is a lot of pressure on Sars to step up its game. The tax authority has lost high profile individuals, and its technical skills base has been eroded. Carolissen admitted the skills set has to be lifted in its entirety.
PKF tax partner Paul Gering, said the caliber and level of audits they have been experiencing is certainly not the same as five years ago.
“The fact that there has been such significant non-compliance with returns, which are not submitted, is an indictment on the level of enforcement. The fact that the numbers are growing and not shrinking is an indictment on enforcement,” he said during question time.
Carolissen said Sars’ enforcement barometer depends on the compliance climate.
“The trick is to find the balance between enforcement treatment and the climate. With the slippage of compliance we have seen, there is a need for a severe increase in enforcement efforts.”
He said it should perhaps have been done sooner, but in the current climate people again have to be made aware that tax is not a discretionary payment.
“We are noticing that people are using payments from VAT and PAYE for their own cash flows, and they think they are allowed to do so,” Carolissen said.
People have to pay their taxes, whether they like the taxman or not. “There are people who shift their morality as the economic environment changes,” he said.
There is a close relationship between fiscal citizenship and democracy. If people are unhappy about their tax authority there are different ways to deal with it – like approaching the courts or the Office of the Tax Ombud.
If South Africans do not honour the contract between themselves and government to pay their fair share, there will be anarchy, Carolissen remarked.
Patricia Williams, tax partner at Bowmans, wrote in an article that Sars may be tempted to respond with a knee-jerk reaction of more audits and higher penalties for non-compliance.
She said Sars must focus on legitimate power. “Given the high level of penalties in the Tax Administration Act, there is a real risk of an antagonistic tax environment developing that promotes non-compliance.”
Tax Ombud Bernard Ngoepe (pictured below), said Sars should take the publication of the long overdue Service Charter serious. The charter was drafted in 2005 and should have been released at the end of last year. It has not happened.
Ngoepe said it will offer taxpayers with a benchmark to measure whether they are being treated fairly or not. He said in difficult economic times one cannot close ones eyes to corruption and the fundamental impact it has on tax morality.
Read more from Amanda Visser: