South Africa’s large companies contributed a total of R152 billion in taxes to the economy, making up 17.6% of government’s total tax receipts for its fiscal year ended 31 March 2013. For 2012, these amounts were R143 billion and 18.2% respectively. Total taxes borne by large companies were R48.9 billion for 2013 and R49.9 billion for 2012. Corporate income tax continues to be the highest tax borne by companies operating in South Africa, equating to 70.1% of total taxes borne for 2013 and 73.5% for 2012.
These are some of the findings of PwC’s fifth edition of its ‘Total Tax Contribution’ survey. The survey considers the total contribution made to the national tax revenues by South Africa’s large companies participating in the survey and includes comparative data that covers the 2012 and 2013 fiscal years. The changes in the country’s economic cycle are also reflected in this report.
Paul de Chalain, Tax leader for PwC Africa, says: “In the wake of the recent global financial crisis, the business community across the world has embarked on corporate governance reform, where transparency is a constant theme. The total tax contribution framework provides a robust approach to facilitating such transparency in the area of tax.
“In the South African context, the transparency of tax contributions is critical to the priorities being considered by the recently-constituted Tax Review Committee (the ‘Davis Committee’). Among the initial priorities announced by the Committee is the ‘tax mix’ (i.e. the various categories of tax upon which the state is reliant), and the total tax contribution by corporates will certainly be an important source of perspective on this issue. Another issue being investigated by the Committee is the possible impact of base erosion and profit shifting (BEPS) and the contribution by corporates may also shed light on this question.”
The study was supported by 35 companies and was conducted for the fiscal years ended 31 March 2012 and 2013. The data provided by the companies was for financial year ends between 1 April and 31 March of the following year. The TTC framework provides a methodology for measuring all the different taxes that companies pay and collect, including corporate income tax, Value-Added Tax (VAT) and employment taxes as well as other business-related taxes. The framework makes a distinction between taxes borne, i.e. those taxes that are a cost to companies, and taxes collected, i.e. where companies only administer the collection of these taxes and pay them over to the South African Revenue Service (SARS).
Osman Mollagee, PwC Tax Partner and responsible for leading the South African Total Tax Contribution Survey initiative, says: “A lack of transparency in respect of business taxes, other than corporate income tax has resulted in little understanding of the nature and extent of the total amount of taxes that companies pay. This lack of understanding has led to a general perception that large companies do not pay enough taxes.
“It is not well appreciated that companies pay many other business taxes, apart from corporate income tax. These other taxes usually have little visibility in financial statements as they are included in the costs above profits before income tax and are not separately identified. It is impossible to overstate the importance of large businesses to the fiscal health of the country.”
Survey participants collected a further R103.3 billion in taxes on behalf of SARS for 2013, which represents 12% of total government taxation receipts. For 2012, these figures were R93 billion and 11.85% respectively. Of the significant taxes collected, fuel levies and the Road Accident Fund were the largest at 44% (2012:30.7%). This was followed by pay-as-you-earn tax (PAYE) at 27.6% for 2013 (2012:29.4%). VAT represented 19.6% of taxes collected for 2013 (2012:22.1%). “Although taxes collected are not a cost to companies, they retain an equal risk and compliance cost for these taxes as with the taxes borne,” says Mollagee.
The results of the survey show that South African companies collect more taxes than those they incur. For every R1 of taxes borne, survey participants collected taxes of R2.13 (2012: R1.86).
Out of the group of companies surveyed, the oil and gas sector was the highest total tax contributor to the economy at 37.8% in 2013 (2012: 26.9%). The financial services sector is the next biggest contributor at 13.7% in 2013 (2012: 13.2%). The telecommunications industry follows at 12% (2012:14.5%).
Companies operating in South Africa during the fiscal year ended 31 March 2013 were subject to 26 different taxes, compared to 25 in the previous year.
The average total tax rate (TTR) for all companies taking part in the survey was 30.9%, which means that Tax Freedom Day was celebrated on 13 April. The TTR is a measure of all the business taxes borne against profit before all such taxes.
Due to the introduction of the new dividends tax, there was a 100% increase in collection in the profits taxes category. Product taxes (which include fuel levies, VAT, excise duties and the Road Accident Fund) are the Government’s largest source of revenue.
The study also examines the role and function of the central tax department in each company to determine the cost of the tax function’s responsibility for business taxes. Most companies have a tax risk management framework in place, reflecting a shift towards formal risk management processes and policies over the years. In terms of corporate governance and transparency, there is board and audit committee involvement, and for certain companies there is also a tax committee in place. For the majority of companies (93%), the tax executive bears a significant responsibility in that this person is accountable for all areas of risk.
Compliance is considered to take up 41.3% of the time of central tax departments. Time spent on providing tax advice (utilising internal resources) appears to have increased from 12.8% in 2012 to 17.1% in 2013. This may be indicative of increasing complexity resulting from legislative changes, states the report. Further, it could also be as a result of companies training their internal tax departments or utilising/hiring appropriate individuals to increase the internal support function.
Mollagee concludes: “Transparency around both tax policy and the tax payments made by companies continues to be high on the agendas of both internal and external stakeholders.
“The government continues to engage with business on all significant changes to the tax system, whether by consultation or by inviting comments on draft legislation to ensure that the tax system is workable and has few unintended consequences as possible. The results of the TTC play an important part in forming the dialogue with the Government and business.”