SOUTH AFRICA – SUPPLEMENTARY BUDGET CONTAINS NO SPECIFIC TAX REFORMS
After much speculation, the Supplementary Budget delivered earlier today (24 June 2020) did not contain specific tax proposals, such as a wealth tax. Instead, the Minister of Finance will announce tax policy proposals in the February 2021 budget.
National Treasury intends stabilising the country’s mounting debt levels through a combination of large spending reductions (about ZAR 230 billion of the anticipated ZAR 300 million tax revenue collection shortfall) and ZAR 40 billion in the form of tax measures.
It is expected that taxpayers will have lower taxable income or assessed losses in the immediate future, but the expectation is that as the economy normalizes, taxes will increase.
Instead of specific tax reforms the South African Revenue Service (SARS) will seek to increase tax collection by:
- Focusing on international taxes, particularly aggressive tax planning using transfer pricing.
- Increasing enforcement to eliminate syndicated fraud related to VAT refunds and import valuations.
- Expanding the use of third-party data to find non-compliant taxpayers.
- Improving the collection of debt due to the fiscus, and ensuring that outstanding taxpayer returns are filed and liabilities paid.
The above areas of focus will likely entail the following actual steps by SARS:
- Increasing the numbers of audits, applying potentially more aggressive tax interpretations, and applying greater general scrutiny, in the areas of international tax, transfer pricing, VAT refunds, customs valuations, and audits based on third-party data (for example, requiring taxpayers to reconcile their tax return filings to the total receipts in their bank accounts).
- SARS obtaining court summonses and/ or issuing fines, in order to get outstanding tax returns submitted.
- Increased recovery action, including refusing applications for suspension of payment of taxes, and increased instances of SARS applying the ‘pay now, argue later’ principle, including instructing banks to withdraw money out of taxpayers’ bank accounts.
While it is good news that no drastic tax measures have been introduced, taxpayers are urged to ensure that they are duly prepared for the SARS collections drive. It is important that taxpayers carefully consider their approach to taking tax positions when filing their annual or provisional returns. Click here to read a recent newsflash we sent on this topic.