As the Euro zone is South Africa’s largest trading partner, the decreased demand for South African exports has resulted in a deteriorating economic performance, an increase in the trade deficit and more sombre approach to the economy. The National Treasury forecasts GDP growth at only three percent for 2013.
With fiscal deficits increasing, and the National Development plan’s approval, the tax authorities are under increasing pressure to hunt and collect from a smaller pool of taxpayers. The result has been an increase in tax audits and disputes, creating an uncertain landscape for taxpayers.
This trend is by no means unique to South Africa – tax authorities around the world are becoming more aggressive in pursuing corporate taxpayers. The introduction of the Tax Administration Act hints at these tensions. It provides the tax authorities with substantially more invasive powers (for example search and seizure of documents without a warrant and criminal sanctions on not providing information timeously). Taxpayers who are subjected to an audit would be well advised to treat these exposures proactively and understand their rights in terms of the Tax Administration Act as well as Administrative and Constitutional Law principles.
Taxpayers face a challenging and complex tax environment. The tax authorities will continue to audit large corporate taxpayers regularly. The frequency and intensity of the audit may vary directly with the risk ascribed to the particular taxpayer and the perceived aggressive tax planning implemented. Even where these transactions comply with the letter of the law, they may be regarded as tax aggressive if they do not comply with the “spirit” of the law and, if that is the case, are bound to be challenged. South Africa ranks amongst the best in the world in the financial and legal sector, auditing standards and business sophistication. With Africa widely viewed as the last frontier of continents providing real growth, the foreign investor would be well placed to promote strong corporate governance regarding their tax function.
No doubt, the upcoming 2013 budget speech will allude to how the tax authorities will source the additional revenue needed to address increasing deficits and successful implementation of the National Development Plan.