South Africa’s tax administration system has undergone significant change in terms of leadership, structure and policy over the past two years, professional services firm PwC reports.
It notes that, more recently, the government has introduced several economic measures, including tax measures to protect businesses and vulnerable employees during the Covid-19 lockdown period and after the lockdown has been lifted.
It notes that, added to this, companies are seeing an increase in tax audits and disputes and that all signs point to even more intense focus by the tax authorities in the future.
While companies are facing many challenges, it is also positive that there are improvements in the efficiency of the tax administration process, especially in terms of the time taken by the tax authorities to verify tax audits and make value added tax (VAT) refund payments, the firm highlights.
Its 'Annual Taxing Times 2020 Tax Controversy and Dispute Resolution Survey' was created to benchmark taxpayers’ experiences when dealing with the South African Revenue Service (Sars).
The latest survey, the third in the yearly series, was conducted between May and July. A total of 107 corporate respondents completed the survey and taxpayers from across 23 industries participated in the survey.
The report presents respondents' feedback concerning the Voluntary Disclosure Programme (VDP), issues faced by corporates in managing audits and disputes, Sars’ service delivery and the impact of the Covid-19 measures on their tax affairs.
In terms of the audit process, 48% of survey respondents felt that they were ‘extremely likely’ to be selected for an audit/verification by Sars following submission of their Corporate Income Tax (CIT) returns.
Sixty-six per cent of survey respondents stated that Sars had granted their extensions to submit and gather information ‘most of the time’ or ‘always’.
PwC says it is notable that there has been a steady improvement in the length of time taken to finalise a verification audit, with 49% of respondents (compared to 40% in 2018) indicating that it takes three months to complete an audit.
The VDP gives taxpayers an opportunity to correct defaults previously submitted to Sars without incurring potentially significant penalties.
This year, just under half of respondents (46%) said they had made use of the VDP application process.
PwC says it is concerning to note that only 20% of respondents that had made use of the VDP had their applications approved within three months, while 37% reported that their applications took more than 12 months to finalise.
More than half of respondents (54%) do not believe that the VDP has assisted their company to obtain the required relief, the firm points out.
Moreover, many respondents stated that they find the application process confusing, with 73% of participants indicating that an interpretation note would be useful when considering or drafting an application process.
In terms of Sars’ delivery process, less than half of respondents (47%) believe the Sars Service Charter makes ‘no’ difference to the quality of Sars’ delivery service, down from 62% in 2019.
Most participants (98%) believe that Sars’ official key performance indicators should be linked to the Sars Service Charter in order to incentivise improved performance by Sars officials (up from 54% in 2019).
With regard to Covid-19 measures, only a quarter of respondents believe Sars and the National Treasury have provided adequate relief measures during and after the lockdown period, while 30% say that more should have been done to relieve liquidity and promote business continuity.
Just over half of respondents (54%) said they took no action to reduce or discontinue any of their tax obligations, while 34% took advantage of payment relief for Pay As You Earn.
A further 20% reduced or discontinued provisional tax payments, while a minority made use of relief offered for VAT, CIT yearly payments and customs duties and levies.
When asked whether Sars was equipped to handle their companies' queries about service-related issues during or after the lockdown period, only 3% of respondents said Sars was ‘always’ prepared.
A further 23% responded that SARS was ‘never’ equipped to help them.
Evidence suggests that four factors drive tax compliance: deterrence, social norms, fairness and trust, and the complexity of the tax system, says PwC. The survey summarises the responses of corporate taxpayers to questions about these drivers.
Fewer respondents (55%) believe that there will be a ‘good chance’ that their company will be audited by Sars, compared with 60% in 2018.
How taxpayers are treated and how they perceive tax rates can be highly influential, notes PwC. This year, 81% of respondents consider corporate tax rates to be acceptable or fair (2019: 78%; 2018: 69%).
Taxpayers’ confidence in the government is important as it supports compliance, and minimises avoidance of rules and regulations, indicates PwC. Half of survey respondents stated that they still have confidence in the government, while the other half said they had lost confidence.
Only 1% said they have a lot of confidence in the government.
PwC highlights that it is also notable that three-quarters of respondents indicated that it takes them more time to figure out tax administration and Sars processes.
Survey participants were asked what they thought Sars should do to improve its service to taxpayers.
More than half (55%) favoured actions to improve the technical skills of Sars officials and improve facilities to communicate with Sars directly (51%), excluding the call centre and eFiling.
Twenty-three per cent of respondents also requested an improvement in turnaround times, and 32% were in favour of improving Sars’ enforcement capabilities to broaden the tax base.