An increasing number of corporate taxpayers believe the quality of service delivered by the South African Revenue Service (Sars) is improving, according to PwC’s latest Taxing Times Survey.
A combined 53% of respondents said they “agree” and “strongly agree” that the quality of service has improved since the introduction of the Sars Service Charter in 2018. This is a 14% improvement from last year’s survey.
But when asked whether they believed Sars has improved in “delivering quality outcomes and performance excellence” over the past 12 months, 62% said no. However, this is 9% better than last year’s result.
The sixth annual Taxing Times Survey was conducted between May and July 2023. One-hundred-and-eighty-two corporate taxpayers participated from 16 industries, including financial services, retail and consumer, agriculture, industrial manufacturing, and energy, utilities, and mining.
The goal of the survey is to assess corporate taxpayers’ interactions with Sars, to identify the organisation’s strengths and highlight the areas that require improvement.
Has it become easier to comply?
Participants were asked whether it has become easier to comply with their tax obligations. The result was split down the middle, with 51% saying it has – a 6% improvement from the previous year.
But 49% of participants “disagree” and “strongly disagree” that it has become easier to comply with their tax obligations.
Participants’ reasons for finding compliance challenging included that online channels provide only specific results, whereas cases are not treated individually; the increasing number of audits and requests for information; and constant changes to Sars’s systems.
“The findings may imply that taxpayers find Sars’s systems or processes too difficult to understand/navigate. Sars should consider establishing an open line of communication with specialists to enable taxpayers to quickly seek assistance with the interpretation and execution of tax legislation. The call centre also does not appear to be of assistance to taxpayers,” PwC said.
Sars’s compliance with timelines
Participants were asked whether they believed Sars honours the periods in its Service Charter and the Tax Administration Act (TAA).
Although the results indicate an improvement, it appears taxpayers still have a negative perception of their experience with Sars and its turnaround times.
Only 4% said they “strongly agree” with the proposition that Sars complies with the timelines – 2% better than what participants said in 2022.
A combined 71% of participants said they “strongly disagree” and “disagree” that Sars honours the timelines, which was an improvement from 2022’s 77%.
Experience with verifications
When assessing corporate income tax (CIT), 53% of participants believe it is extremely likely they will be selected for verification, compared to 47% in 2022.
Considering that 53% of participants indicated they are extremely likely to be selected for verification and 32% stated they are somewhat likely to be selected, it appears that Sars’s selection criteria are wide. Given the increased volume of verifications, PwC said the question needs to be asked whether Sars has sufficient resources to conduct the verification process adequately and to consider whether each taxpayer’s information has been submitted properly.
Equivalent to last year’s results, 51% of participants said their CIT verifications take between one and three months to complete. Thirty-four percent of participants said their verification takes between three and six months to finalise – a marginal improvement from last year’s 30% (2021: 29%). Therefore, within a six-month timeframe, 85% of verifications are completed.
The results also indicate that fewer participants (3%) are experiencing an extended turnaround time on the finalisation of the verification process of “12 months or longer” in comparison to 2022 (8%), 2021 (17%), and 2020 (11%). This shows an improvement in drawn-out verifications by Sars.
Time taken to finalise an audit
Nineteen percent of participants said a CIT audit is finalised within one to three months, which is a 5% improvement compared to 2022 (14%). An additional 3% of participants said their audits are finalised within three to six months.
“A possible reason for the swifter finalisation of audits may be attributable to the interpretation notes and guides to assist taxpayers in correctly declaring their tax affairs, thereby avoiding protracted audit processes,” said Jadyne Devnarain, PwC SA Tax Controversy and Dispute Resolution associate director. “Another reason may be that Sars’s recruitment drive to employ specialist skills has yielded results.”
Issuing of progress reports
Public Notice 788 read with section 42(1) of the TAA compels Sars to issue progress reports every 90 calendar days. The purpose of this report is to keep the taxpayer informed during the audit process. Such a report should include a description of the current scope of the audit, the stage of completion of the audit, and relevant materials still outstanding from the taxpayer.
Participants were asked whether a progress report was sent every 90 days during the last audit. The participants indicated the following:
- Always – 10% (2023), 4% (2022), 3% (2021).
- Sometimes/most of the time – 19% (2023), 35% (2022), 41% (2021).
“In our experience, progress reports are mostly templates, with no substance which gives little indication of the progress of the audit. The survey results are concerning, especially considering that progress reports form part of Sars’s duties to uphold section 33 of the Constitution, which provides for fair procedural action by a public body,” PwC said.
Letter of Assessment
After Sars has reviewed and considered a taxpayer’s response to the Letter of Audit findings, Sars must provide the taxpayer with a Letter of Assessment/Finalisation of Audit Letter. The Letter of Assessment should include the grounds of assessment, as well as the amounts of the assessment or indicate if no adjustments were made. The grounds of assessment must include the basis of the adjustment/s, and Sars must outline the factual and legal grounds upon which it relies for the imposition of understatement penalties.
The grounds of assessment should also place the taxpayer in a position either to accept or object to the assessment.
In this year’s survey, 21% of participants indicated that Sars provided “sufficient” grounds to understand the basis for the assessment raised, compared to 20% in 2022. Thirty-four percent of participants indicated that the grounds of assessment set out by Sars were “somewhat sufficient”, compared to 2022’s 32%. In aggregate, 55% of participants indicated that Sars provided sufficient explanations (grounds) to understand the basis for the assessment raised (2022: 52%).
Forty-five percent of participants indicated that Sars supplied either “somewhat insufficient” or “insufficient” grounds to understand the basis of the assessment.
Understatement penalties
Sars needs to ensure that the percentage of the penalty imposed matches the appropriate behavioural category as outlined in section 223 of the TAA. The Letter of Assessment must make clear reference to whether Sars has raised understatement penalties and under which category of behaviour. The onus lies with Sars to prove that the taxpayer’s behaviour justifies the imposition of the understatement penalties.
Similar to the previous year’s survey results, 47% of participants (45% in 2022) indicated they “strongly agree” that Sars is aggressive when levying understatement penalties. Thirty-four percent (38% in 2022) indicated they “somewhat agree” that Sars is aggressive in raising understatement penalties. Only 6% indicated they “strongly disagree”.
VAT verifications and refunds
In 2023, 32% of participants (2022: 35%) reported being selected for verification every time they submit a VAT201 return, while 28% (2022: 31%) indicated they were selected for verification whenever the return results in a refund.
Based on this year’s findings, there has been a consistent drop in the number of VAT returns selected for verification. Ten percent more participants than in 2022 indicated that they are hardly ever selected for a verification.
Sars has in the past few years reported an increased reliance on third-party data, which may have an impact on the statistics in this year’s survey. There is a possibility that artificial intelligence used in Sars’s risk engine may be more sensitive to changes, which will result in an increase in the number of verifications performed, PwC said.
Survey respondents indicated an improved turnaround time for the finalisation of VAT verifications compared to previous years. Forty percent of participants said their verifications were completed within 21 days, a 4% increase from last year. Only 4% of participants said their verifications took more than 12 months to complete, compared to last year’s 6%.
Participants were asked about their experience with the timeframe in which Sars paid out refunds. Twenty-six percent said Sars released a refund within 21 days, while 18% said Sars did not make payment of refunds within 21 days or did so only after follow-up enquiries.
Voluntary Disclosure Programme
The Voluntary Disclosure Programme (VDP) enables taxpayers to ensure their historic tax records are accurate. It not only protects taxpayers from criminal investigation and certain penalties but is also a valuable means of revenue collection. In April 2023, Sars had finalised 1 540 VDP applications, which contributed to R3.5 billion in revenue, PwC said.
This year, 35% of participants said they had used the VDP process, compared to the previous year’s 40%. This year, 27% of participants said Sars declined their application because it was not “voluntary”, compared to 55% last year.
“This may be an indication of taxpayers’ improved understanding of the VDP legislation – for example, by ensuring that there are no audits on the relevant tax types, before commencing a VDP application. This may also be an indication that Sars does not take an overly narrow approach when considering the voluntary nature of a VDP application,” said Elle-Sarah Rossato, PwC SA Tax Controversy and Dispute Resolution partner.
Twenty-five percent of participants indicated that their VDP application was declined because the defaults related to a similar default that occurred in the past five years. This may demonstrate that the taxpayer did not realise the full impact of the initial VDP application with the true intention of correcting their tax position.
Do taxpayers trust Sars?
This year, 42% of respondents said their trust in Sars has increased, which was a decrease from 45% in 2022.
“This is a critical issue that Sars must address, as rebuilding trust will eventually translate into restored public confidence, increased tax morality and ultimately the payment of tax, which our country sorely needs to fulfil our fiscal budget,” Rossato said.
