Despite an increase in revenue collection, business income tax remains weak.
Despite increases in revenue collection from all other tax types, the money collected from South Africa’s corporates was still in decline, according to the South African Revenue Service (Sars).
In the release of its annual report to Parliament’s standing committee on finance, Sars commissioner Oupa Magashula said that despite a 13%, or R76-billion, uptick in overall revenue collection, corporate income tax still showed a marginal decline of 1.7% or R2.3-billion on the previous financial year.
The decline coincides with continued uneven recovery in economic growth after the recession, which hit many businesses’ profits and saw more than a million jobs shed. Personal income tax collection, however, increased by 10%, on the back of above-inflation wage increases.
Corporate income tax represents about 20% of total revenue for Sars.
The drop was a substantial improvement on 2009-2010, which saw corporate income tax revenue collection fall by 18%.
This year companies in the agricultural, telecommunications, manufacturing, financial services and construction sectors all showed a continued decline in revenue collection growth.
Construction in particular saw a decline in corporate income tax revenue of 32%, from R5.9-billion in 2009-2010 to R4-billion in 2010-2011.
Telecommunications saw a drop of 19.5%, or R11.1-billion, in 2009-2010 to R8.9-billion in 2010-2011. Similarly, agriculture saw a 15.1% decline from R2.3-billion to R1.9-billion.
“Provisional tax from companies, which is the primary contributor to corporate income tax collections, was subdued on the back of the lagged effects of the recession,” Sars said.
Mining companies appeared to bounce back, with corporate income tax revenue collection growing by 66.1% from 2009-2010 to 2010-2011.
On the whole other tax categories saw substantial growth, said Magashula. The main contributors to the overall increase were personal income tax, which rose by R21.6-billion, and value-added-tax (VAT), which increased by R35.6-billion.
Debt to Sars
The report noted that, despite significant job losses, personal income tax, representing 34% of total tax revenue, saw a 10.5% change from the previous financial year thanks to above-inflation wage settlements.
Debt to Sars increased by 9% from R79-billion to R86-billion in 2010-2011. But this was an improvement on the leap in debt to Sars of 30% in 2009-2010, which the revenue service attributed to a “combination of the economic difficulties of that year and our own challenges and those of taxpayers in managing accounts”, said Magashula.
Account management was critical to explaining the still-rising debt levels owed to Sars, he said. “When an error [on a tax return] is made —this error remains as an unpaid debt or a credit liability on our core systems until the taxpayer or Sars has rectified this error,” Magashula told the committee.
“In addition any payment received without a return is listed on the credit book until we are able to allocate this payment against a specific tab period for that taxpayer. The vast majority of assessments subject to audit, objections and appeal also remain listed as a debt until finalisation.”
The modernisation of the VAT system showed improvements, he said, with 88% of VAT declarations processed within 24 hours and refunds paid within 48 hours.
The scope for tax abuse was greatest in VAT, Magashula said, as it was the largest tax administered by Sars and was coupled with extensive payouts of refunds.
Sars had seen an increase in VAT refunds, which were not supported by a similar increase in corporate income tax.
Of the total R287-billion collected through VAT in the previous year, R103.6-billion was paid out as VAT refunds. “Once paid illegitimate refunds are very difficult, if not impossible to recover,” he said.
Additional verification processes had been introduced at the beginning of the year to check against this, Magashula said.
Vendors that were selected to verify their refund claims further had also been given the option to revise their declarations where an error was suspected.
The option to rectify what may have been “deliberately mistaken” claims had seen VAT vendors revise claims downwards to the tune of R4-billion, he said.