South Africa: Local Companies Pay Fair Share of Tax

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Business Day (Johannesburg)

10 October 2008
Posted to the web 10 October 2008

Sanchia Temkin
Johannesburg

THE amount of corporate tax paid by SA's large companies is coming under increasing scrutiny and public debate, but a recent study shows how much corporate and other business taxes large companies are actually paying.

Contrary to popular belief, these companies are actually paying large amounts of tax and are acting as collecting agents for the South African Revenue Service (SARS).

"Internationally and locally there is a perception that large companies do not pay as much tax as they should," says Charles de Wet, the PricewaterhouseCoopers (PwC) director responsible for SA's total tax contribution project.

But these perceptions are seldom supported by empirical data, and are frequently hedged with generalisation and innuendo, says De Wet.

Yet companies pay many other business taxes, apart from corporate tax, which also contribute to public finances. "Because of the lack of transparency over these other business taxes, there is generally little understanding of the nature and extent of tax that companies pay."

In an effort to improve transparency regarding the amount of tax contributed by large companies, PwC has designed the total tax contribution framework.

The study enables companies to report on their total tax information in a consistent manner, while the results of the report facilitate an informed debate among stakeholders and enhance corporate social responsibility reporting, De Wet says.

The results of the study were made available this week. SA's largest 50 companies paid R49,22bn in taxes last year and collected R52,890bn on behalf of national and local governments , says the study.

Corporate tax represented the most significant proportion of taxes borne by companies (R32,787bn). This corresponds to a contribution of 27,3% of the total corporate tax receipts of the government for last year. The study included a broad spectrum of companies from the retail, manufacturing, and financial services sectors.

Companies such as Anglo American, Harmony, Massmart, Netcare, Shoprite Checkers, Unilever, Vodacom and Woolworths took part. They were asked to complete a questionnaire in respect of taxes paid and collected during their latest financial year that coincided with the 12 months to March last year.

De Wet says the issue of whether large companies in SA are paying all the tax due by them is of concern to many stakeholders -- among them the government, SARS and the treasury, the companies themselves, trade unions, and the general body of taxpayers. The aggressive avoidance of tax is increasingly being seen as antisocial, unethical, reprehensible, and a failure of corporate governance.

SARS commissioner Pravin Gordhan has complained of the proliferation of tax schemes that have allegedly siphoned more than R10bn from SARS's coffers over five years.

During an address in the National Assembly on May 25 last year, Finance Minister Trevor Manuel said SA's low tax morality cost the country an estimated R20bn in lost revenue annually.

For the financial year to March, SA's large business centre (which caters for such organisations) managed to collect more than R203bn, representing more than 35% of total revenue collected.

SARS has said SA is dependent on its large businesses for direct and indirect taxes. Between 60% and 70% of revenue is collected from large businesses every year.

"For the most part the only information that has been disclosed by companies regarding the amount of tax that they pay is to be found in the annual report," says De Wet.

"However, this is often an uninformative source, as data on business taxes paid by the company may not be separately reflected, are usually not aggregated, and may be difficult to identify."

The purpose of the study was to collect information on all business-related taxes paid by SA's large companies and all amounts of taxes collected by such corporates and remitted to SARS, De Wet says.

"The aggregated data are to be used as the basis for discussion with the government and all stakeholders on the present and future shape of the South African tax system."

The results of the study highlight the government's reliance on corporate tax to generate significant taxation revenue.

For instance, corporate tax represented 66,1% of the total taxes borne by companies.

The other major business taxes paid by companies included secondary tax on companies, customs duties, excise duties, and fuel levies.

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