South Africa compared favourably in the World Bank and PWC’s recently released report titled Paying Taxes 2018, coming in 46th overall. However, in respect of time to complete a company income tax audit (31.6 weeks), the country falls short of regional and global averages (21.8 weeks and 27.3 weeks respectively).
 
The report assesses tax systems across 190 economies, comparing each by region and globally. It focuses on company taxes with the hope of informing policy decision making and tax reform.

Correlation with the Tax Ombud report
“The World Bank report is an excellent indicator for South African policy makers, especially if year-on-year rankings are considered,” says Ettiene Retief, Chairperson of National Tax and SARS/National Treasury Stakeholders Committees of the South African Institute of Professional Accountants (SAIPA) and Centre of Tax Excellence.
 
Retief advises that the report should be contemplated in conjunction with the Office of the Tax Ombud’s annual report, which recognises specific problems in the local tax regime and recommends corresponding solutions. “Although the reports are significantly different in purpose and scope,” observes Retief, “it’s encouraging to note that their finding correlate well, providing confidence in the World Bank’s metrics.”

Foreign trade
South Africa ranks well in Africa and positions 99th out of the 190 global participants in the study. Retief praises the country’s good performance but notes that the report doesn’t cater to some real-world complexities that could impact the tax cycle significantly. An example is PWC’s case study business used in the report, which doesn’t engage in foreign trade.
 
“In the digital era, even small companies actively pursue cross-border trading, especially in a poor economy because it’s an obvious way to improve income,” says Retief. “For large concerns, the frequency and complexity of foreign deals, sometimes between several multi-national parties, are likely to increase compliance time substantially and attract additional audits and need for supporting documentation that delays the process.”

Out-of-scope considerations
The document also doesn’t account for external impediments, like evolving legislation and the newly introduced country-by-country reporting aimed at combatting base erosion and profit shifting. “Although commendable, the initiative will no doubt increase the compliance burden,” says Retief.
 
A major oversight in the report is that it mainly measures the compliance cost in regards to filing returns and addressing tax audits, but fails to address the additional costs incurred to manage tax risks and compliance. Companies incur costs for systems and services that enable them to meet their reporting and compliance obligations, and the true cost of cash flow is not measured in regards to delayed refunds.
 
The cash-flow issue in some cases are not caused by SARS, such as the case where a company invoices a government department for work performed, the VAT is payable when the invoice is issued, but the government department delays payment.  “The total cost of tax compliance must be taken into account because it’s a vital factor in judging real efficiency,” asserts Retief.

SARS accountability
Lastly, Retief says that although a tax authority needs immense power and authority to meet its mandate to collect tax revenues for funding its country’s expenses, it must be held to the same efficiency standards as the taxpayer.
 
“It’s not unheard of for companies to wait many months for a refund to be processed, many turning to the Tax Court or Tax Ombud for relief. The cost in cash flow is a major hindrance to business.” He highlights calls for SARS to develop a concrete service charter and commends the Office of the Tax Ombud’s initiative to identifying the SARS’ systemic problems. “This would improve our tax efficiencies significantly.”
 
ENDS

MEDIA CONTACT: Idéle Prinsloo, 082 573 9219, idele@thatpoint.co.za, www.atthatpoint.co.za 
 
For more information on SAIPA please visit:
Website: www.saipa.co.za
Twitter: @SAIPAcomms
LinkedIn: South African institute of Professional Accountants Company
Facebook: South African Institute of Professional Accountant

Author: Sibusiso Thungo, Tax Specialist at the South African Institute of Professional Accountants
 
The eagerly awaited report by the Office of the Tax Ombud on the delay in the payment of refunds by the South African Revenue Service (SARS) is a victory for individuals and companies taxpayers.
 
The Ombud initiated its investigation after receiving 500 complaints relating to the delay in payments within a period of six months. It found the number of complaints sufficient to initiate the investigation into the systemic nature of the complaints.
 
SAIPA praises the legislature for recently amending the Tax Administration Act (TAA) to allow the Ombud’s office to investigate complaints which indicate that there is a systemic problem.
 
The Ombud’s report found the current system allows for SARS to unduly delay the payment of verified refunds to taxpayers in certain circumstances. Taxpayers argued that, in this respect, the tax collection system was being implemented unfairly by SARS.
 
This resulted in financial hardships to them and, in some instances, the near collapse of their businesses; in others, loss of jobs ensued.
 
Complaints by taxpayers are not new
SAIPA welcomes the report, although the issues raised in the report are not new. It has, however finally been addressed by the Ombud. Industry bodies such as SAIPA, the South African Institute of Chartered Accountants (SAICA) and the South African Institute of Tax Professionals (SAIT) have raised these issues with SARS in the past.  Their concerns were never sufficiently addressed as they should have been.
 
The Ombud’s report should serve as a lesson to SARS to take matters - which are raised with them - seriously and not to wait until it becomes necessary to resort to the Ombud to investigate its conduct. This is an extremely important report, and the findings and recommendations cannot be ignored.
 
The complaints have been raised by taxpayers who have endured hardship and who took refuge with the Ombud to resolve the matter. The fact that some taxpayers did not want to be identified for fear of intimidation does not take away from the fact that their complaints were justified.
 
The report clearly illustrates that SARS has to improve its systems and that some of its internal processes will have to be revisited. SARS is being guided by the TAA and it is clearly in a position to apply the act correctly. The Ombud found that SARS “acted outside of the legal framework” in some instances, which caused financial hardship to taxpayers. The financial hardship was found to be “drastic’’ in some instances due to SARS failure to pay the refunds on time.
 
Matters of concern
One of the practices which was highlighted in the report referred to the raising of assessments to reduce the overpayment of tax (credits) to zero for the 2016 and 2017 financial years.
 
The Ombud said the information provided by SARS did not give a complete picture of the full financial impact this practice has had on refunds. The practice of raising assessments solely to absorb credits simply because a taxpayer has not explained an overpayment is of grave concern.
 
Another complaint which has been raised on numerous occasions related to the verification of bank details. Although the verification has been concluded, SARS still waited 21 days before paying legitimate refunds.  As much as we support any SARS fight against fraud, however using unfair practises cannot be allowed to continue.
 
SAIPA finds it concerning that in some instances SARS did not respond or provide comments to the office of the Tax Ombud, and in other instances they had concern with proving responses on the findings related to the complaints wherein no illustrated cases were found.
 
It would have been prudent for the tax authority to respond or to find solutions to the issues raised by the Ombud. In my view SARS has been more defensive in its responses, than trying to resolve the issues. The report is clearly not about pointing fingers, but to improve current systems and to resolve issues which have been raised in many instances by different stakeholders and taxpayers.
 
True independence of Tax Ombud
This investigation has offered taxpayers a much better understanding of the role of the Tax Ombud. This has without a doubt confirmed the independence of Tax Ombud Bernard Ngoepe and his office.
 
The outcome will surely boost taxpayers’ confidence in the office. It will also boost their trust that they are being protected.
 
It is a victory for taxpayer and for companies who have been placed in financial distress, despite being complaint. The report ensures the fair treatment of taxpayers.
 
ENDS

MEDIA CONTACT: Idéle Prinsloo, 082 573 9219, idele@thatpoint.co.za, www.atthatpoint.co.za  
 
For more information on SAIPA please visit:
Website: www.saipa.co.za
Twitter: @SAIPAcomms
LinkedIn: South African institute of Professional Accountants Company
Facebook: South African Institute of Professional Accountants