Tough road ahead for taxpayers and the taxman

Companies who benefit from over half a trillion rand worth of Covid-19 relief packages should pay it forward by doing the right thing next tax season, according to tax experts.

The South African Revenue Service (Sars), meanwhile, would have to double down on its collection efforts as Covid-19 relief for businesses put a massive dent in state coffers.

Government is bracing for a massive fall in revenue collection this year following the country embarking on a protracted lockdown period from March this year. South African Revenue Service (Sars) commissoner Mark Kingon is expected to update the nation on issues pertaining to revenue collection on Tuesday, following massive tax cuts announced by Finance Minister Tito Mboweni last month.

According to senior attorney at Tax Consulting South Africa, Jean Du Toit,  government’s efforts to rescue the economy were a double-edged sword for business, as well as the country’s revenue collector. He estimated the impact of the Covid-19 pandemic was R70 billion, with a total revenue cost of R26 billion.

Some of this money could be recovered if the relief measures actually worked.

“I think Sars really has its hands tied. The fiscal package of R500 billion and the revenue costs of these tax relief measures, Sars will have no choice but to collect for tax, whether it’s through more aggressive collection measures or they enhance their revenue collection measures. I think enforcement from Sars is one aspect to look at so that they collect more tax, which will be more effective rather than again amending the law to create new taxes,” said Du Toit.

Mboweni announced relief for qualifying companies to defer 35% of their employees’ tax over four months. He also announced provisional corporate income tax relief without penalties or interest. The gross income threshold for both deferrals was increased from R50 million to R100 million, providing total cash-flow relief of around R31 billion with an expected revenue loss of R5 billion.

CEO of tax company BTMT, Busisiwe Mdletshe, said most of government’s relief efforts for businesses were expected to pay off as the economy recovered.

“The R500 billion stimulus package came from taxpayers, but having said that it would be shortsighted for them to give so much in relief and not expect to to pay it back later,” Mdletshe said.

He added that compliance and cooperation by all companies who could afford to forego the relief and those who would be due to pay in the next collection season was important for government to begin to recover the expected losses in revenue this year.

But Du Toit was concerned that four months may not be long enough for some businesses to recover from the effects of the Covid-19 lockdown.

“I think some of the measures will definitely be useful, particularly the employment tax relief will put money in the pockets of many; the same with the suspension on the payment of pay-as-you-earn employees tax.”

But most of these deferred payments over a four-month period would provide short-term relief, only to come back to bite some businesses when the holiday was over, having accumulated debt to Sars.

“Effectively you are borrowing from the fiscus and in four months time, arguably things will be looking worse than they do now, many businesses may be worse off, having created even more liabilities for themselves.”

According to the Centre for Development and Enterprise (CDE) in a newly published report, South Africa could not simply recover by returning to its pre-Covid-19 growth trends, but needed to surpass them in order to fully recover.

Policymakers could not assume that the economy emerging after the lockdown would be capable of generating even the very low rate of growth that South Africa had over the past decade.

“The Covid-19 crisis means that we may permanently lose some of our industrial and commercial capabilities.

“It is vital that the recovery from the Covid-19 crisis not be a repeat of the global financial crisis. The damage incurred by the pandemic requires significant economic reforms if South Africa is ever to fully recover,” the report said.

– simnikiweh@citizen.co.za

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