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Taxing times

It’s important to document everything during this period, say the experts.
History shows that governments provide 'support' during a crisis, then come back later to increase taxes. Image: Shutterstock

The word ‘unprecedented’ is used to describe the impact of Covid-19 because we are in a situation we have never experienced before.

Speculation notwithstanding, organisations and institutions just don’t what the post-pandemic world will look like. The virus is playing out differently from sector to sector and country to country.

The common denominator however is that governments are under pressure to raise revenue.

Tax practitioners therefore had much to speak about on Thursday during a Graphene Economics webinar on the impact of the crisis on the taxation landscape.

South African Institute of Tax Professionals CEO Keith Engel expects Covid-19 to affect tax policies in Africa in two ways, as a result of what he refers to as the ‘shock wave’ and the ‘post-period’.

Shock phase

Engel explains that this phase includes what most governments are currently doing to ensure that they save businesses from closing their doors and letting staff go.

“During the shock phase, the government is doing what it can to save the economy. They are giving whatever incentive they can [provide] and are talking about subsidies – but there is only so much money.”

Engel says that during this phase the “smarter” countries are talking about liquidity and the “less smart ones” are talking about providing tax relief and incentives.

He says the problem with the latter is that as a government’s funds get depleted, it will wake up to realise that it has a problem. He cites as examples previous global crises that left governments indebted.

“After every crisis governments are becoming more indebted. So we see two things going on. One is: can we grow our way out of it?

“If that happens, that’s wonderful because all go forward. But if we grow our way out of it and that growth is not enough to cover that extended debt, then we have a problem.”

He says this would mean that revenue services would have no other choice but to “aggressively” push up taxes. “Treasury will have unrealistic targets under revenue services – that is the history of Treasury.

“You will definitely see that revenue services will be pushing aggression because they simply have no choice,” says Engel.

Sébastien Gonnet, director of international financial advisory firm Accuracy and founder of Transfer Pricing Economists for Development, adds that companies are also in the shock phase to protect employees and cut costs.

“Soon there will come the difficult decisions to be made,” he says, adding that companies will have their backs to the wall and that restructuring will take place.

Preparing for the post-pandemic period

Gonnet’s advice is for the accounting departments to document everything that happens during this period.

Businesses won’t be able to make decisions that are sound and commercially reasonable for another three years or so, he says, because those decisions need to be based on what happens – and the documentation that is collected – now.

Engel adds that the documentation is important for “justification” purposes and may be important for timeliness in that it will allow companies to make decisions, based on limited information, but with ‘at this time’ and ‘for this reason’ reasoning “because you have to act quickly, and act in the group’s interest”.

Gonnet says 2020 is not a definite year in the tax world because announcements are still being made and decisions and markets are still being studied.

What Gonnet would like to see from authorities globally, as companies navigate these uncharted waters, is more circulars educating them on what it is they are expected to do.

“It is not out of reach,” he says. “Certain tax authorities have provided companies with information of things that they will be expecting from certain companies and from my understanding this has been welcomed, because you have a better understanding of what to expect from the other side.”

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2020 will be the defining year where many citizens embark on a tax revolt due to the exposure of how governments miss-spend hard-earned tax monies.

@AP : Please explain how you practically implement a tax revolt ??
Its theoretically easy , but practically ??
Other than all employers witholding PAYE and vendors not paying over VAT , its practically impossible .

There isn’t anyone holding a big placard saying Tax Revolt Here but it’s a progressive phenomenon – deregistration, informalisation, underground trading, living ‘under the radar’. Compliance levels just fall away, except for larger organisations that have to be seen to behave (though maybe profit-shifting by multinationals can be seen as a form of protest).

Starts with concerted avoidance.

Withholding PAYE and VAT is all you need to have a major impact.

I used to have a fully tax compliant sideline business. I paid eye-watering amounts of provisional tax every February and August. Due to the regime’s refusal to help people like me, this August I will submit a final return showing a huge loss, which I can fully back up with proper paperwork, when SARS tries to audit me. From then on, I will become part of the informal sector. I will work in cash or Bitcoin only, or channel payments through relatives’ accounts, if I really have to accept an EFT payment. If I am too pale to get help from the regime, my tax money is also too white.

Perhaps the constitutionality of employers deducting PAYE from employees should be tested. Employees should be given the right to pay their own taxes and perhaps be in a position to challenge the law if no services are received for taxes paid. Alas, I know I’m farting in the wind here.

I agree and maybe I am an accounting simpleton but we regularly, like now, get stung by having to pay VAT on big invoices where the creditor delays paying us beyond the usual 30 days so we are out of pocket. Requesting a VAT refund is still a delay and risks the inevitable audit (been there done that). Solution?

Individuals should have more rights to push back against incompetence and victimization.

Maybe one of the options that needs to be pursued is that SARS when handing over funds to government insist on an income and expenditure tabulations. Any funds stolen from or any frivolous expenditure is deducted from the next years allocation. Any theft then the head of the unit must be instantly dismissed and their company pension contributions are held in escrow until the cases are resolved

Great idea why didn’t Pravin think of this one. Without corruption this country can fly again.

Because Pravin’s interest lies in party unity, not in fixing anything. Changes in voting patterns pushed Zuma aside, not anything Pravin said or did.

Perhaps more effective than a Tax Revolt is for all taxpayers to join the ANC. It is completely legal to do and it gives those people the right to vote high-caliber representatives into the decision-making positions within the ANC – to ensure that tax money is spent more effectively.

That’s not a bad idea at all. The only way forward is to split the ANC and this holds more promise than a spontaneous revolt from the existing membership.

I like your thinking, but there are a lot of alarm bells going off right now.

There aren’t enough taxpayers to make a meaningful difference.

End of comments.

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