In the dynamic landscape of South Africa’s fiscal realm, PwC’s recently released 2023 Taxing Times Report sheds light on the complex relationship between corporate taxpayers and the South African Revenue Service (SARS). Despite SARS’ concerted efforts to enhance its systems and technologies for improved tax compliance, the report reveals a lingering challenge – the restoration of trust between SARS and corporate entities.
PwC conducted an extensive survey among corporate taxpayers in South Africa, aiming to dissect their recent interactions with the taxman. The survey scrutinized both the achievements and areas that require enhancement in future tax seasons. The findings point to a critical issue: SARS has fallen short in rebuilding trust with corporate taxpayers, hindering its ability to boost revenue effectively.
In a bid to make paying taxes more accessible and non-compliance more costly and high-risk, SARS has undergone significant technological enhancements. However, the survey indicates that these efforts have not translated into a significant improvement in trust levels. When asked whether their trust in SARS had increased in the last 12 months, 42% of respondents affirmed, a marginal increase from 45% in 2022, while 58% expressed that trust had not grown, compared to 54% the previous year.
The lack of trust is attributed to various factors, one of which is a perceived deficiency in the knowledge of SARS staff. Corporate taxpayers highlight that this knowledge gap significantly impacts their trust in SARS. Additionally, despite an increase in audits – considered a positive development – inefficiencies, particularly in the call center and other operational areas, contribute to delays and frustration.
One of the survey’s noteworthy pain points revolves around turnaround times, with 71% of respondents indicating that SARS falls short of meeting the specified times outlined in its service charter. Although this marks an improvement from 2022 (78%) and 2021 (86%), it remains far from the positive responses observed in 2018-2020.
However, amidst the challenges, there is a silver lining. The survey highlights that 51% of respondents found it easier to be tax compliant, reflecting an eight-percentage-point improvement from the previous year. Despite this positive sentiment, it underscores that nearly half of all corporate taxpayers still find tax compliance challenging.
One aspect where SARS has exhibited increased assertiveness is in pursuing understatement penalties. Corporates have noted heightened aggression from SARS in this regard. PwC recommends that SARS align the percentage of imposed penalties with the appropriate behavioral category, as outlined in section 223 of the Tax Administration Act (TAA). The Letter of Assessment must explicitly reference whether SARS has raised Understatement Penalties (USPs) and under which behavioral category. PwC emphasizes that the onus is on SARS to prove that the taxpayer’s behavior justifies the imposition of the USP.
Consistent with previous survey results, 47% of participants strongly agree that SARS is aggressive in levying USPs, a slight increase from 45% in 2022. Another 34% somewhat agree with SARS’ aggressiveness in raising USPs, leaving only 6% who strongly disagree.
In conclusion, PwC’s 2023 Taxing Times Report underscores the intricate challenges faced by SARS in regaining corporate trust and fostering a more positive relationship with taxpayers. While improvements are evident in certain areas, the persistent lack of trust and identified pain points demand a comprehensive approach from SARS. Rebuilding trust is not only crucial for corporate confidence but also pivotal for enhancing tax morality and, ultimately, facilitating the fulfillment of South Africa’s fiscal budget. SARS must navigate this taxing terrain with strategic reforms and a commitment to addressing the concerns raised by corporate taxpayers in the pursuit of a more cooperative and transparent tax ecosystem.