Authored by: Ettiene Retief, Chairman of the National Tax and SARS Committee at the South African Institute of Professional Accountants
The decision by the South African Revenue Service (SARS) to re-establish its Large Business Centre (LBC) will undoubtedly ease the administrative and compliance burden of big business and high net-worth individuals.
It will also enhance tax collections that have fallen sharply since the centre was dismantled in 2015 following major restructuring under the reign of suspended commissioner Tom Moyane.
Under the restructured business model, currently the focus of the Nugent commission of inquiry into governance and administration at the tax agency, the LBC was systematically dismantled to “eliminate duplication and improve efficiencies”, SARS said at the time.
The impact of the dismantled LBC
The tax affairs of large corporates and high net-worth individuals are highly complex. Their risk profiles differ vastly from ordinary taxpayers. The potential loss to the fiscus is substantial if they are not managed properly.
Before the LBC was dismantled it was responsible for the collection of more than 30% of total tax collections. This included individual income tax, corporate income tax, Value Added Tax, employee taxes, dividends tax, donations tax and royalties tax.
The dismantling of the centre led to a decline in the ability of SARS to collect what was due to the fiscus. Concerns were also raised about a decline in compliance. The “one-stop-shop” for large businesses was gone, leaving multi-million-rand enterprises in the same position as ordinary taxpayers.
This had a major impact on the way they had to deal with complex issues, the manner and time in which queries was solved, audits conducted, and disputes resolved.
Compliance, collections and enforcement
When the LBC was established in 2004 the aim was to encourage compliance, to ensure responsible enforcement and to offer specialised and sector specific expertise to large businesses.
Sector specific expertise was developed in the most crucial sectors in the economy, including financial services, construction, mining and agriculture. The scope of the LBC covered listed and unlisted companies, parastatals and high net worth individuals. Expertise in highly complex tax legislation, notably transfer pricing, was developed to ensure that revenue is taxed where it is generated.
The expertise in the LBC was not only in terms of the interpretation and implementation of tax legislation, but also included expert knowledge of the businesses in the different economic sectors.
This assisted hugely with greater administrative knowledge, better risk-profiling in terms of audits, and better audit and dispute outcomes. The LBC ensured that there was one dedicated relationship manager which dealt with clients within specific sectors. This meant that a company raising a specific issue or query with SARS were dealing with the same individuals, who not only understood the essence of the issue, but was able to give feedback to how the matter was being dealt with.
The dismantling led to much of the expertise being lost to SARS. An exodus of expertise followed the restructuring process, which was done by the consultancy firm Bain at a cost of more than R160m.
Pivotal role of the LBC
The announcement by Acting commissioner Mark Kingon to re-instate the LBC, as well as the Illicit Economy Team, must be welcomed. The acting commissioner said in his statement, announcing the move, that it was based on the “pivotal role” these units play in its service to large corporate taxpayers, and in fighting illicit trade in the country.
SAIPA supports the move to re-establish the LBC.
There is a deep understanding of the time and effort it will take to rebuild the capacity that existed before the dismantling of the units. However, this will certain increase better administrative outcomes, faster turnaround times and better compliance, audit results and dispute resolution.
Although SARS has not put a timeline on when the units will be reinstituted, the fact that dedicated teams have already started the process, is encouraging.
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