Construction firms’ tax affairs worry SARS

rp_22470511.jpgAuthor: Linda Ensor (BDlive)

The South African Revenue Service (SARS) is concerned about the low level of tax compliance in the construction industry, whose reputation was tarnished by widespread bid-rigging and price fixing uncovered by the Competition Commission.

Last year 15 companies paid a total fine of R1.46bn for collusive tendering following an investigation by the commission. Now it transpires that the tax authority has had to dig deep for data and badger construction companies to pay their dues to the fiscus.

In the 2013-14 fiscal year SARS completed 800 audits of construction firms, which raised R1.76bn in assessments of which R192.6m has been collected.

It also discovered — on the basis of information supplied by the Construction Industry Development Board and the National Home Builders’ Registration Council — that there were 627 companies that were not registered for either value-added tax (VAT) or pay-as-you-earn (PAYE).

SARS noted a general decline in industry compliance in its annual report tabled in Parliament last week. On-time filing of VAT returns declined from 47% in the 2010-11 financial year to 43% in 2013-14, while the level of nonfiling increased from 36% to 48%. Though PAYE filing compliance improved from 61% to 65% in the past four years, corporate income tax filing fell. The number of late or outstanding corporate tax returns increased from 64% in 2011 to 75% in 2013.

In a bid to enforce compliance, SARS officials made more than 9,500 telephone calls to nearly 4,200 taxpayers in the industry last year. “This resulted in more than 1,800 cases being finalised and the submission of more than 5,000 outstanding returns,” the authority’s annual report said.

“Overdue debt of around R480m was collected … SARS referred 29 cases with a prejudice of R52m to the National Prosecuting Authority (NPA) for possible prosecution.”

SARS would continue to focus on the construction industry, it said. “SARS will pay particular attention to companies that receive government contracts to ensure they are tax compliant because these firms receive funding that is sourced from taxpayers,” it said. The modernisation of the tax clearance certificate system would tighten control over the issuance of certificates that are required for applications for government contracts.

Besides construction, audits of four multinationals probed for transfer pricing yielded assessments of R3.7bn, of which R2.4bn was collected.

High-net-worth individuals also received particular attention from SARS, which has identified about 3,000 in the country. Nearly 80 audits were conducted into their affairs, yielding assessments of R349m and recovering debt of R106m. Six cases were referred to the NPA for possible prosecution.

The compliance of tax practitioners came under SARS’s spotlight following the implementation of the Tax Administration Act, which required that they re-register. The act enables SARS to better monitor and regulate the conduct of tax practitioners.

In the re-registration process, SARS was able to recover R13.5m in debt. It conducted 243 compliance audits of tax practitioners which yielded revenue of R14.2m. Twenty cases of outstanding returns involving R18m were handed to the NPA for possible prosecution.

Former acting commissioner Ivan Pillay noted in his review that more than 99% of the 6.6-million returns received by SARS last year were submitted electronically, either through e-filing or at a SARS branch office. Nearly 94.5% of all personal income tax returns filed were processed within three seconds.

“Measures enabling employers to register their employees for income tax have borne fruit resulting in the achievement of a compliance level of more than 99% among individuals required to register for personal income tax,” Mr Pillay added.

SARS conducted more than 1.8 million audits, of which about 20,000 were “high-risk, complex and high-impact” cases.

It collected R900bn in tax last year, of which R311bn came from personal income tax, R180bn from corporate income tax, R238bn from VAT, and R176bn from customs revenue. Total debt outstanding at year end was R83bn, or 9.2% of total tax revenue, of which R29.5bn was new debt. A total of R15bn was written off during the year.

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