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South Africa Improves Tax Administration

by Lorys Charalambous,, Cyprus

09 June 2011

In his budget vote speech to parliament, Finance Minister Pravin Gordhan was able to point to improved tax revenue collection and compliance during the last fiscal year, and looked forward to further success in 2011/12.

He disclosed that preliminary revenue and spending estimates suggest that the consolidated budget deficit for 2010/11 was 5% of gross domestic product (GDP) - a “pleasing outcome” given the original budget estimate of 6.2%. That outcome mainly reflected the recovery in tax revenue associated with improved economic growth, and, as that growth continues to improve this year, the government aims to lower the budget deficit to between 3% and 4% of GDP.

As a result of the recession, tax collections declined from a peak of 27.6% of GDP in 2007/08 to a trough of 24.5% over the past two fiscal years. Despite a year-on-year improvement of 12% in revenue collections, South Africa’s tax to GDP ratio has yet to recover to the levels before the recession, and is expected to remain below 25% for 2011/12, despite a further 10% rise in tax receipts, including a strong recovery in company tax receipts.

Gordhan confirmed that improved tax administration has also contributed to the better revenue performance, and confirmed that the South African Revenue Service (SARS) will continue its focus to improve the levels of tax compliance in the country.

He reported that, last year, a record of more than 4m individuals submitted their tax returns on time, and that the 2011 tax season for individuals will start on July 1 this year.

In addition, he disclosed that the 2011 tax season for employers closed recently with another record number of employers filing their annual payroll reconciliation in timely fashion. To date, over 229,000 South African employers have filed their reconciliations, compared with less than 196,000 last year.

Gordhan also thanked those employers that have submitted their payroll data on time, as this will now enable SARS to prepare a unique income tax return for most working individuals in the country who will be required to submit a tax return after July 1, 2011. Employers who have not yet submitted their payroll information to SARS are encouraged to do so as soon as possible in order to avoid penalties.

He considered that good progress has also been made in pursuing non-compliant taxpayers who have outstanding income tax obligations. Following the despatch of over 230,000 penalty notices in January last year, almost 82,000 individual taxpayers have submitted returns, and over 50,000 have paid penalties amounting to ZAR189m (USD28m).

He disclosed that South Africa has also been able to take advantage of its inclusion in the BRICS grouping of emerging economies. Building on work of the India, Brazil and South Africa grouping, progress has been made in sharing tax and customs information and bringing greater pressure to bear on nearby offshore financial centres, such as Mauritius.

He added that the visit in May this year of the Chinese Vice-Minister responsible for Customs had provided an opportunity to engage on the possibility of closer cooperation between SARS and China Customs, particularly on issues such as the under-valuation of goods and measures to combat counterfeit and illicit trade.

He reminded parliament that this year’s proposed Tax Laws Amendment Bills include new anti-avoidance measures, including revision of the existing provisions to treat dividends received under cessions, where tax-free treatment is inappropriate because the holder lacks any meaningful economic interest in the underlying shares, as ordinary revenue.

Tax avoiding dividend schemes will also be closed when the new dividend tax is implemented from April 1, 2012. The new tax is a replacement for the secondary tax on companies.

TAGS: individuals | South Africa | compliance | tax | economics | business | offshore confidentiality | tax compliance | budget | corporation tax | payroll | offshore | dividends | revenue statistics | Africa

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