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Gordhan Reviews South African Tax Season

Tuesday, April 3, 2012

South Africa’s Minister of Finance, Pravin Gordhan, has disclosed the preliminary tax collection results of the South African Revenue Service (SARS) for the 2011/12 fiscal year, and introduced its new five-year Compliance Programme.

Total tax revenue of ZAR742.7bn (USD96.9bn) during the year (an annual increase of 10.2%) kept the country’s tax-to-gross domestic product (GDP) ratio relatively unchanged year-on-year, from 24.5% in 2010/11 to 24.8% in 2011/12, but well below the pre-crisis high of 27.6% in 2007/08.

The main revenue contributors for 2011/12 were personal income tax (PIT) collecting ZAR251.6bn, a rise of 10.3% year-on-year that was supported by high provisional payments and higher than expected wage settlements; and corporate income tax (CIT) producing ZAR153.7bn, an annual increase of 14.2%.

Value added tax (VAT) collections, at ZAR190.5bn, were up by 3.8%, while revenue from customs duties increased by 28.9%, due to importation of vehicles, clothing and footwear.

“Although the global crisis is no closer to resolution,” Gordhan commented, “buoyant growth in tax revenue in South Africa was driven by the strong performances of import taxes, recovery of corporate profits and resilient consumption.”

Revenue growth benefited from strong contributions from the financial sector (plus 37%), and CIT collections also benefited from stronger imports in the automotive sector and increased investments in capital intensive industries, such as energy, manufacturing and agriculture. “This,” he added, “is an important indicator of investor confidence in the future of the domestic economy and provides a good platform for future growth”.

The preliminary outcome of revenue collection for 2011/12 represents, Gordhan confirmed, “another excellent contribution by SARS to ensure our fiscal expenditure programmes are sustainable. The strong revenue performance was also borne from a culture of growing tax compliance.”

Over the last 18 years SARS has steadily raised rates of tax compliance while broadening the tax base. The number of registered individual taxpayers increased from 1.7m in 1994 to more than 6m in 2009/10, but then doubled following policy changes in 2011 to register all individuals in the country who are formally employed (13.7m individuals by end-March 2012) despite changes to the thresholds.

Over the same period, the number of companies registered for income tax increased from 422,000 in 1994 to more than 2m in 2011/12. Registered VAT vendors grew from 397,000 in 1994 to 652,000, in spite of changes to the thresholds, and the number of registered employers rose from 177,000 in 1994 to 385,000 currently.

Gordhan also disclosed that SARS will, from this year, increase its efforts to create a climate that is increasingly conducive to full compliance by all taxpayers. A new SARS Compliance Programme has been introduced, which is an overview of SARS’s plans for the next five years to further boost the levels of compliance with tax and customs legislation.

Research by SARS has identified particular areas in the South African economy and in the tax system that poses significantly higher risks of non-compliance. Over the medium-term, SARS will concentrate its attention on the construction industry, where research by the tax office has shown that this industry has significantly lower levels of compliance than other sectors in the economy. Additionally, SARS will crack down on the abuse of trusts by wealthy South African individuals, a significant number of whom are seen to not be registered taxpayers.

Transfer pricing by large businesses will also come under the spotlight with a comprehensive international review of the practice, the training of SARS staff and greater cooperation with other countries’ revenue administrations.

In addition, tax practitioners, who currently represent around 3m taxpayers, will be pursued to ensure that they are all persons of good standing and members of a professional body, and SARS will develop a rigorous risk profiling system to identify high risk practitioners.