South Africa Eyeing Tax Compliance

September 21, 2010 International Tax CooperationOffshore TaxationTaxation in South Africa

ReflectingSouth Africa is looking for new ways to increase tax compliance in both South Africa and other African nations, including targeting “aggressive tax schemes” by multinational companies, hiring “tax soldiers”, and investigating the possibility of harmonious tax policies across Africa.

On September 20th at the 2010 Africa Tax Conference held in Mpumalanga, South Africa, Oupa Magashula, Tax Commissioner of South Africa, spoke in front of a panel of tax experts and tax department representatives of various African nations on the possible means of improving the tax regimes of the countries in the continent. It was generally agreed that the rampant attempts at tax evasion, continuous inconsistencies in the application of tax law, and differences in legislation between countries have led to a tax situation in dire need of improvement.

Oupa Magashula said that there is a significant rise in the occurrence of multinational companies employing tax schemes whose the sole purpose is lowering tax obligations, both in South Africa and across the entire continent. According to his statement, South African tax authorities have recently reprimanded several companies attempting to evade their local tax obligations through unscrupulous cross-border transactions on the African continent, and foiled two attempts by companies to “purchase tax credits” through loopholes in bilateral tax agreements.

The Commissioner further explained that there are approximately 500 standing bilateral tax agreements signed between African nations. The resulting legal confusion and general tax administration “incompetence” have led to an abundance of tax arbitrage opportunities, which are being consistently exploited by tax evaders. To address the situation, African nations need to begin harmonizing their tax policies, and replacing the numerous bilateral agreements with multilateral tax agreements. Such actions would also have the added benefit of reducing the perceived complexities associated with investing in Africa. It is envisioned that the African Tax Administration Forum, which was launched in 2009, will be initial platform through which the tax harmonization efforts will be started.

Addressing tax issued faced within South Africa Oupa Magashula indicated that South African tax authorities could soon begin using “tax soldiers” to ensure compliance, as recently employed in Uganda. The potential “tax soldiers” are tax authority employees who would be tasked with visiting small businesses, investigating their financial records along with the general condition of the store, and making on-the-spot tax compliance assessments. He added that the South African Revenue Service will soon launch a series of investigations on large companies, especially those with high levels of international activity, in an attempt to catch any “aggressive tax schemes”. Oupa Magashula also added that he would like to see new rules instated which would make it necessary for big companies to take on a dedicated tax specialist to serve on their boards of directors.

Photo by coda