Mixed reviews for South Africa's taxation system

29 November 2019 Consultancy.co.za 3 min. read
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New analysis from PwC that examined tax practices and mechanisms across the globe has reflected a decline in South Africa’s taxation system relative to the global scenario. Experts have suggested that this is more representative of an improvement in countries across the globe, rather than a decline in South Africa.

This suggestion is based on the fact that South Africa demonstrated improvements across several metrics, including the number of hours it takes to comply with taxes. Where the global average for time taken to comply stands at 234 hours, South Africans take an average of 210 hours to comply.

A similar scenario can be observed in the VAT sphere, with the time taken for South Africans to receive a refund declining from more than 16 weeks to just over 15 weeks. The global average stands at more than 27 weeks. South Africans also take far less time to comply with VAT refunds, averaging at 8.5 hours compared to a global average of more than 18 hours.

Despite such promising indicators, South Africa’s rank dropped to 54 across the globe this year, compared with 48th last year. According to PwC Tax Policy Leader for South Africa Kyle Mandy, this discrepancy can be explained by considerable improvements in practices in the top countries worldwide.

Mixed reviews for South Africa's taxation system

“This year we have seen some significant changes in the TTCR of individual territories as they seek to radically change the structure of their tax system to address local circumstances. As these countries’ performance has increased, so has South Africa’s overall position declined,” said Mandy. 

He also indicated that the low ranking could be the result of South Africa’s constraints on decreasing the tax rate. “The TTCR measures the amount of taxes and mandatory contributions payable by businesses, after accounting for allowable deductions and exemptions, as a share of commercial profits. A country will improve its TTCR ranking, if there is a decrease in the mandatory taxes and contributions payable. In South Africa’s current economic climate, there is no scope to decrease taxes and South Africa is not in a position to follow the global trend towards lower corporate tax rates,” he said.

Nevertheless, there remain a number of concerning factors surrounding tax collection in South Africa, particularly with respect to tax defaults. High default rates in recent years have driven the government to bring about tax hikes, in a bid to restore wealth in government coffers.

The South African Revenue Service (SARS) has also introduced more stringent tax enforcement measures recently, including the public naming and shaming of repeat defaulters. According to Mandy, the country has also made a number of significant improvements, particularly when it comes to digitalising tax collection.