For tax­pay­ers, it’s a case of hurry up and wait

Business Day - Business Law and Tax Review - - BUSINESS LAW & TAX REVIEW - Beric Croome

SARS of­fi­cials are so fo­cused on the col­lec­tion of tax in the month of March they do not at­tend to other mat­ters such as ob­jec­tions and ap­peals or fi­nal­is­ing re­funds

THE fi­nan­cial year for gov­ern­ment came to an end on March 31 and tax­pay­ers have be­come ac­cus­tomed to the month of March be­ing a month dur­ing which the Com­mis­sioner of the South African Rev­enue Ser­vice (SARS) seeks to col­lect as much tax as pos­si­ble in or­der to meet the col­lec­tion tar­gets spec­i­fied in the Na­tional Bud­get.

SARS is­sued a press re­lease on April 1 which in­di­cated that by mid­night on March 31 SARS had col­lected R674,2bn in tax rev­enue, which was R2bn higher than the rev­enue bud­get set in the 2011 bud­get in Fe­bru­ary.

The in­crease in tax col­lected rep­re­sented nom­i­nal growth in rev­enue of 12,6% or R75,6bn more than the pre­vi­ous fis­cal year. That SARS ex­ceeded its col­lec­tion tar­get is to be com­mended.

How­ever, a ques­tion that must be asked is whether the con­tin­ual in­crease in tax col­lected is sus­tain­able, tak­ing ac­count of the nar­row tax base in the coun­try.

Ac­cord­ing to Tax Sta­tis­tics 2010, pub­lished by SARS, the num­ber of reg­is­tered in­di­vid­ual tax­pay­ers in­creased from 4,1-mil­lion in 2004/2005 to more than 5,9-mil­lion in 2009-2010.

SARS has pre­vi­ously re­ported that there are about 5-mil­lion SITE work­ers who de­rive an an­nual tax­able in­come be­low R60 000 per year and are there­fore not re­quired to reg­is­ter and sub­mit tax re­turns. There­fore, the num­ber of in­di­vid­u­als pay­ing tax, ac­cord­ing to SARS, amounts to about 10 920 612 per­sons.

It is dif­fi­cult to de­ter­mine how many in­di­vid­u­als should be reg­is­tered as tax­pay­ers in SA and the short­fall be­tween those per­sons who should be reg­is­tered and those who are on the reg­is­ter con­sti­tutes part of the tax gap. The tax gap also com­prises tax not col­lected as a re­sult of tax­pay­ers fail­ing to de­clare the cor­rect amount of in­come sub­ject to tax — this con­sti­tutes tax eva­sion and is il­le­gal.

It would ap­pear that in the 2009-10 fi­nan­cial year that about 14-mil­lion per­sons ben­e­fited from so­cial grants funded by reg­is­tered tax­pay­ers. In at­tempt­ing to es­tab­lish how many per­sons should be reg­is­tered for tax pur­poses it is ap­pro­pri­ate to re­fer to the Quar­terly Labour Force Sur­vey, pub­lished by Sta­tis­tics SA, for the third quar­ter of 2010 which was is­sued on Oc­to­ber 26 2010. That sur­vey re­ported that 17 371 000 per­sons were in em­ploy­ment. Com­par­ing the num­ber of per­sons in em­ploy­ment per the Labour Force Sur­vey of 17 371 000 per­sons and the num­ber of per­sons pay­ing tax of 10 920 612, there is an un­ex­plained short­fall of some 6 450 388 per­sons.

Part of the short­fall prob­a­bly com­prises those per­sons who de­rive amounts be­low the tax thresh­old and are there­fore not re­quired to pay tax. How­ever, it does ap­pear that there are a sig­nif­i­cant num­ber of eco­nom­i­cally ac­tive per­sons in the coun­try who are not reg­is­tered for tax pur­poses. SARS has un­der­taken var­i­ous ini­tia­tives to en­cour­age per­sons out­side of the tax net to reg­u­larise their tax af­fairs and to broaden the tax base.

The fis­cal statutes reg­u­late the tim­ing of pay­ment of tax by tax­pay­ers but un­for­tu­nately cer­tain SARS of­fi­cials seek­ing to en­sure that the col­lec­tion tar­get is met do not al­ways ad­here to those prin­ci­ples.

We are aware of a num­ber of cases where tax­pay­ers were, for ex­am­ple, con­tacted on March 3 by SARS to en­quire when pay­ment would be made on an as­sess­ment is­sued which con­tained a pay­ment date of March 31.

Clearly, un­der the pro­vi­sions of the law, tax­pay­ers are en­ti­tled to pay tax as and when due ac­cord­ing to the pro­vi­sions of the fis­cal statutes and not be­fore.

In other cases SARS sought to en­cour­age large em­ploy­ers to pay Em­ploy­ees’ Tax (PAYE), which would un­der the law be due on April 7, no later than March 31, thereby en­sur­ing that the cash was ac­counted for in the col­lec­tion tar­get set for March 31 2011. The man­ner in which cer­tain of­fi­cials con­ducted them­selves would tend to in­di­cate SARS of­fi­cials are par­tic­i­pat­ing in bonuses based on the col­lec­tion tar­get set in the bud­get.

Where a tax­payer has lodged an ob­jec­tion or an ap­peal, that tax­payer is en­ti­tled to re­quest a post­pone­ment of pay­ment of tax un­der sec­tion 88 of the In­come Tax Act or equiv­a­lent pro­vi­sion in an­other fis­cal statute. Re­cently, the rules gov­ern­ing the post­pone­ment of tax pend­ing an ob­jec­tion or ap­peal were clar­i­fied and tax­pay­ers now need to sat­isfy cer­tain cri­te­ria to en­sure that a de­fer­ral of tax in dis­pute is granted.

Un­for­tu­nately, it does not ap­pear that the dif­fer­ent branches at SARS are aware when tax­pay­ers have ap­plied for the de­fer­ral of pay­ment of tax in dis­pute. We en­coun­tered a num­ber of in­stances dur­ing March where SARS of­fi­cials were de­mand­ing pay­ment of tax even though the tax­payer, hav­ing noted an ap­peal or ob­jec­tion, had re­quested a de­fer­ral of pay­ment.

It ap­pears that SARS of­fi­cials be­come to­tally fo­cused on the col­lec­tion of tax in the month of March and do not at­tend to other mat­ters af­fect­ing tax­pay­ers such as ob­jec­tions and ap­peals or fi­nal­is­ing re­funds payable to tax­pay­ers. Many tax­pay­ers await­ing re­funds in March were in­formed that those re­funds would not be fi­nalised prior to March 31 and that those re­funds would only be re­leased af­ter April.

Dif­fi­cul­ties tax­pay­ers en­coun­tered with SARS of­fi­cials seek­ing to col­lect tax dur­ing March of­ten in­cluded SARS of­fi­cials, who were un­aware of the tax­payer’s full cir­cum­stances and who did not have ac­cess to the tax­payer’s records on the SARS sys­tem, call­ing for pay­ment of tax be­fore it was legally due.

In­ter­na­tional re­search has shown that where tax­pay­ers are treated fairly they are more likely to ad­here and com­ply with the fis­cal statutes in a par­tic­u­lar coun­try. There­fore, where of­fi­cials choose not to ad­here to the con­sti­tu­tional pro­vi­sions or SARS Ser­vice Charter in their in­ter­ac­tions with tax­pay­ers, such con­duct un­der­mines the lev­els of tax­payer com­pli­ance that may be ex­pe­ri­enced in the fu­ture.

Clearly, where tax­pay­ers are in­debted to SARS and fail to pay timeously SARS has sub­stan­tial pow­ers in the fis­cal statutes to en­sure that the tax is paid over promptly. Tax­pay­ers, there­fore, need to meet their obli­ga­tions to pay their tax as and when it falls due to SARS. How­ever, at the same time, SARS, when col­lect­ing taxes from tax­pay­ers, needs to ad­here to the stan­dards set out in the Ser­vice Charter and con­tained in the bill of rights.

It is also im­por­tant that the tax base is broad­ened by in­creas­ing the num­ber of tax­pay­ers on reg­is­ter, thereby en­sur­ing that the tax bur­den is fairly shared by cit­i­zens of the coun­try and that those tax­pay­ers who are on reg­is­ter, but who do not com­ply with their fis­cal obli­ga­tions, are brought to ac­count.

In ad­di­tion, tax­pay­ers need to be sat­is­fied that the taxes they pay to the state are prop­erly utilised in up­lift­ing the lives of all South Africans and not wasted.

Dr Beric Croome is a tax ex­ec­u­tive at ENS.

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