It’s not just about money
Absolute costs of hosting World Cup must be weighed against indirect benefits
IN THE wake of the spending hangover experienced by many South Africans after the Soccer World Cup, some are questioning whether this international sporting event has cost the country dearly.
Various economists have estimated the cost to the taxpayer to be between R30bn and R50bn.
These figures are a far cry from the reported spend by Visa of $312m. However, not only does one have to look at the actual cost, but the opportunity cost as well. Although many taxpayers feel that this money could have been better spent on housing and education, a World Cup is not all about money. In the South African context, the potential effect of bringing a nation together is perhaps priceless.
The outlook may not be entirely bleak from a VAT revenue generation perspective. The general thrust of the VAT system is that it is a tax on final consumption. Broadly speaking, the man on the street bears the cost of VAT and it is this cost which passes to the revenue authority as income. Consequently, the statistics referred to below must be viewed against the backdrop of the principles of VAT revenue generation and, in particular, the final consumer’s purchasing patterns.
The South African government granted special tax concessions and guarantees to Fifa for the World Cup; “tax-free bubbles” were established. These bubbles were designated Fifa sites such as the championship stadiums and the official fan sites. Although the relief within these bubbles applied to both non-residents and residents, it was restricted to “qualifying persons” within the realm of the Fifa designated sites. With regard to VAT, goods and services within these bubbles were zero rated, while any input tax on the ac- quisition of such goods or services was claimable. This benefited foreign service providers operating temporarily within the bubble. The public who purchased goods and services also benefited from the lower cost due to the zero rating. In spite of these special tax concessions, the ticket sales remained subject to VAT and the spectators contributed to VAT revenue generation in this way. Conversely, however, the concept of the tax-free bubble represented VAT leakage for the South African Revenue Service (SARS).
According to Nedbank, growth in retail sales beat market expectations in May. The increased spending was bolstered by the build-up to the World Cup as citizens and foreigners alike got caught up in the frenzy of this once in a lifetime opportunity. Nedbank reported that all major categories recorded growth on an annual basis. The categories that contributed the most to the growth were sales of household furniture, appliances and equipment, pharmaceutical and medical goods, cosmetics and toiletries.
In part, this growth may be attributed to the injection initiated by the World Cup but is also a sign of an economy on the mend.
Visa reported that foreign card spending reached $312m (about R2,4bn) in the lead-up to and during the eventm an increase of 70% over the same period last year. Visa confirmed that more than 90% of the spending was in leisure and business travel categories — restaurants, retail, vehicle rental, accommodation and air travel. The VAT levied on these supplies would have added to the coffers of SARS.
Although these figures reflect the direct immediate benefit, the longer term cannot be ignored. SARS should reap the benefits of the World Cup in years to come with particular emphasis on increased VAT revenues.
The hosting of the World Cup in SA saw an influx of specialists who assisted with the construction of infrastructure to ensure the successful hosting of the event. However, most of these individuals would have been exempt from pay as you earn (PAYE) tax under legislation passed regarding World Cuprelated activities.
On the other hand, a number of South African tax residents who were working offshore were recruited back to the country to assist with the building of the stadiums and other infrastructure. This also saw an increase in the number of South Africans who were employed. This resulted in an increase in the collection of PAYE for the country. It is reported that 50 000 permanent jobs have been created by this event and this is a legacy that would be most welcomed by SARS as their tax collection would increase. There were also temporary jobs that were created before and during the World Cup and it is reported that about 690 000 jobs were created as a result. This would also be a boost for PAYE collection.
A number of South African-based companies have also seen an increase in their revenues resulting from the need to improve infrastructure. However, the benefit of this increase in revenue may have not been recognised because it coincided with the global economic meltdown.
Most companies attracted normal tax on these revenues but SARS, in consultation with Fifa, agreed that sponsors, supporters and Fifa partners would not be subject to tax on certain revenues generated before and during the World Cup and the Confederations Cup. These are revenues that were generated in certain designated sites such as stadiums, fan parks and so forth. Some of the South African entities who benefited from this special dispensation are Match, MTN, Telkom, SABC and First National Bank. However, any costs incurred to generate these rev- enues were not deducted for tax purposes. In order for these entities to benefit from a deduction, they would have to be in a tax-paying position insofar as the revenues generated from the designated sites are concerned.
If the costs incurred exceed the revenues generated, the entities that are subject to this special dispensation will not be in a position to carry forward the tax losses. The biggest challenge for these entities is to identify direct revenues and costs that are subject to these specific arrangements. For example, there could be foreign exchange differences if certain goods or services are priced in foreign currencies such as UK pounds or US dollars. The other item would be interest income associated with revenues generated during the World Cup and the Confederations Cup. The question is whether these amounts should be treated as part of expenses or revenue that are subject to this specific dispensation.
The entities that were not subject to this dispensation will be subject to corporate tax for all the revenues generated before and during the World Cup and SARS should benefit from the increased revenues. However, there could also have been a number of entities or individuals who have financially benefited from this tournament but who are not within the tax net. In these cases SARS will be the loser.
Moses Mabhida Stadium, Durban