Gordhan issues warning to tax dodgers

3 April 2012

While South Africa’s overall tax compliance has improved, certain sectors of the economy are taking advantage of loopholes to default on their payments – but will soon find their loopholes closing, says Finance Minister Pravin Gordhan.

The government will soon implement stringent measures to clamp down on tax defaulters, Gordhan said during the launch of the South African Revenue Service’s compliance programme in Pretoria on Sunday.

Gordhan said that although overall tax compliance had improved, the trends required constant monitoring.

“Sars will continue to widen the base of people who are within the tax bracket through constant innovations to ensure that all who should be part of the tax system are part of it,” he said.

“Research has identified particular areas in our economy and in our tax system posing higher risks of non-compliance,” he said.

“This year Sars will increase its efforts to create a climate that is increasingly conducive to full compliance by all taxpayers,” he said.

Construction industry in the spotlight

Attention will be directed towards the construction industry, “a sector which has significantly low levels of compliance than other sectors of the economy,” said Gordhan.

Construction companies which receive government tenders would be at the center of the purge.

“I think we need to take a much harder line. This is not just formal business, these are people who benefit by over-charging government through the inflation of invoice prices – let’s call them beneficiaries and culprits – they must now be brought to book.”

“I am sure there are many candidates of these activities who do not appear on the tax radar. Sars has been instructed to ensure that they must start holding these characters to account,” said Gordhan.

Trusts system ‘being abused by wealthy individuals’

He said a formidable team of experts would be set up to review the trusts system, which Gordhan said was being abused by “wealthy South Africans” without declaring appropriate tax remittances.

He said over the past 18 years Sars has made “tremendous progress” in raising the levels of tax compliance in the country by broadening the tax base.

“The number of registered individual taxpayers increased from 1.7-million in 1994 to more than 6-million in 2009/10. This number doubled following policy changes which required the registration of all formally employed individuals in 2011,” said Gordhan.

The February budget set Sars a revenue target of R738.7-billion. Against this target, Sars collected R742.7-billion, which is R4-billion more than the revised revenue estimate in the 2012 budget.

Gordhan said millions of South Africans who are not formally employed or registered for income tax contributed to the fiscus by paying Value Added Tax, excise duties and the fuel levy.

‘Talk to us before we talk to you’

Both small and major players in the construction industry were among the major tax defaulters, said Sars commissioner Oupa Magashula.

“Those people who are not compliant, we know who these people are [and are] going to do something about it,” he said.

“The message today is: talk to us before we talk to you. If we call you, be assured that you will pay the penalties,” said Magashula.

He said through close co-operation with international partners, Sars will be tightening the rope on those individuals who had not been paying tax or declaring their benefits from the trusts system.

“For these wealthy individuals, we are going to start now. We will be collaborating with many tax jurisdictions around the world to get information of all the offshore trusts that wealthy individuals have,” he said.

“We know of certain tax havens that are popular amongst wealthy South Africans. We have already signed lots of double taxation agreements and tax information exchanges that will give us a full view of these individuals,” said Magashula.

The compliance project would also seek to arrest the widespread proliferation of unlawful cigarettes in the country through tightening the cigarettes manufacturing licences.