According to the Paying Taxes 2014 report, which ranks the tax regimes of 189 international economies, South Africa’s ranking improved from 32nd position to 24th position.
The ranking is based on the total tax rate of a standardised, medium-sized company in a given country in relation to its profit before these taxes, the number of tax payments it has to make as well as its administrative compliance burden. The report, a collaboration between the World Bank and PwC, covers a one-year period to June 2013.
Charles de Wet, tax partner at PwC, says the improvement in the ranking was mainly due to a reduction in the number of tax payments that was facilitated by the efficiency of the eFiling system. Additionally, the abolition of secondary tax on companies in favour of a dividends tax (which is levied on the shareholder) also reduced the total tax rate.
De Wet says the eFiling system works efficiently, take-up has been significant and there may not be meaningful room for improvement in this regard.
He is concerned though that the system’s efficiency could result in a request for more information by the South African Revenue Service (SARS) which could lead to an increased compliance burden for the taxpayer.
One such development has been the VAT Supporting Documents (SD) channel that was introduced in September this year. The channel is effectively a mechanism which enables taxpayers whose VAT return has been selected for audit, to submit their supporting documents electronically to the revenue authority.
According to the SARS website, it currently “has no intention to enforce VAT SD but in due time it may be compulsory”.
The improved efficiency of the eFiling system was also evident in numbers provided for individual taxpayers by SARS earlier this week. More than 99% of returns were submitted electronically and 95% of refunds were paid in 72 hours.
How SA stacks up
According to the report, South Africa’s total tax rate is 30.1%, its compliance burden is 200 hours and the number of tax payments is 7. The latter number refers to payments made for income tax, pay-as-you-earn (PAYE), value-added tax (VAT), workmen’s compensation, property rates, fuel levy and motor vehicle licenses.
This compares to an international average of a total tax rate of 43.1%, 268 hours to comply with tax regulation and 26.7 payments.
The total tax rate measures the burden of all the taxes that a company must pay in relation to its commercial profit. The study uses a standardised company to measure the taxes and contributions paid in each of the countries that participated in the study, allowing for comparisons across countries.
According to the report there are currently no proposals that could lead to further significant changes in South Africa’s total tax rate in the short term. In the medium term however, the introduction of the National Health Insurance (NHI) could significantly increase the total tax rate of the case study company depending on the funding mechanism used.
While the proposed carbon tax that stands to be introduced in 2015 could have a meaningful effect on the broader economy, its direct impact on the total tax rate of the average medium-sized company included in the study is expected to be muted at this stage.