SA drops in Paying Taxes Report ranking

The reason for the drop in the ranking is a newly added indicator, the post-filing index. And the country is not alone, others significantly impacted include Mauritius, which dropped from 13 to 45 and Canada from ninth to 16.

“In its absence, the country would only have fallen two places to 22,” explains Kyle Mandy, a partner and head of national tax technical at PwC South Africa, which presented the report. “This shows our stability when it comes to the other categories. South Africa has been stable for some years so it is not unusual for it to fall - and not climb - as other countries reform.

Source: Business Live

Distance from frontier

The report facilitates a comparison of the world’s tax regimes from the point of view of companies paying taxes. The results are collected using the four sub-indicators; total tax rate, time to comply; number of payments and the post-filing Index. The latest addition measures two components – the VAT refund process and the CIT audit process

The ranking order of the country is a measure of “distance to frontier”, which looks at how far each economy has moved towards the best result in the 12 years of the study as a proportion of the difference between the best and worst results for each indicator.

Total tax rate

When it comes to total tax rate, South Africa has performed well over the years in this regard, both in terms of the world and Africa. “Total tax rate compares favourably with global and regional averages where it is ranked 39 out of 189 countries. However, it ranks behind many of its regional neighbours such as Zambia, Namibia, Mauritius and Botswana,” says Mandy.

South Africa makes relatively low use of labour and other taxes compared to other countries. However, it has a relatively high rate of profit taxes of 21,7%, which is well above the global and Africa averages of 16,3% and 18,2% respectively.

“There is a risk that the total tax rate will increase in future as pressure mounts to introduce new taxes on business to fund increasing spending pressures such as social security reform, NHI and education.”

Time to comply

South Africa also performs well in the next indicator - time to comply. Ranked 90, again the average is below that of Africa and the globe. “The bulk of time here is spent on preparation, with very little time spent on filing and payment. SARS filing and payment systems are generally regarded as user friendly and not overly time consuming,” says Mandy.

The primary area where improvement could be made is on corporate income tax where South Africa’s time to comply is above the world and Africa averages

Number of payments

When it comes to the number of payments, the country is ranked 13, and this is the area where it performs the best. The world average is 25 payments and Africa 37 payments in contrast to South Africa’s seven. South Africa is also a leader when it comes to the number of payments due to the widespread use of electronic payment systems - ranked 13. “This sub-indicator is the primary reason for South Africa’s good overall ranking,” says Mandy. “However, it also represents a significant risk to South Africa’s future overall ranking as more countries introduce electronic payment systems and catch up with the leaders.”

Post-filing index

The last indicator, post-filing index, sees South Africa ranked 93 out of the 181 countries scored for the sub-indicator, slightly below the world average and slightly above the Africa average.

The country performs relatively poorly on the time it takes to get a VAT refund with the time to obtain a VAT refund is 26 weeks, while the global average is 21 weeks. This poor performance has to be viewed in the context of a scenario such as delays from the taxpayer.

“Our view is that the time to comply with the VAT refund is somewhat overstated, notwithstanding that South Africa performs relatively well on this measure – PwC’s assessment was six hours,” says Mandy.

When it came to CIT audits, South Africa performs reasonably well and is below the world and Africa averages with a CIT audit taking 25,1 weeks. Again, Mandy says PwC believes this is slightly overstated in terms of the actual correction of the return. “The 25,1 weeks’ quotes are at the outer limit of our assessment.”

Generally, he adds that CIT audits are less efficient than VAT audits triggered by a refund.

Policy decision making

Paying Taxes 2017 provides information to help inform policy decision making and tax reform, while assessing the rate of tax and cost of complying with tax systems, and raising awareness of all of the taxes contributed by companies as well as corporate income tax as well as providing data which can be compared on a like-for-like basis, and now over a 12- year period.

The limits of the project are that it represents a company in a macro environment and not in the services sector. The comparison is only for that company across the jurisdictions. Not representative of country necessarily. It does not take in to account regional variations across countries. It does not measure social and economic programmes funded through tax revenues, such as the skills levy. It only measures a company in the formal sector and in developing economies that’s a limitation.

The report recorded the tax cost and administrative burden for a local medium-sized business in its second year of operation that is 100% domestically own and does not participate. It has 60 employees, four managers and eight assistants and 48 workers with a turnover of 1050 times income per capita.

Overall, globally the report found that on average it takes the case study company 251 hours to comply with its taxes, it makes 25 payments and has an average total tax rate of 40,6%.