Tax professionals will have to play catch-up with the evolution of the tax system as more major shifts are expected in the next 20 to 30 years. The compliance landscape has shifted from ticking the boxes to risk anticipation, risk identification, and proper disclosure.
This places a heavy reliance on data and systems to manage information. “You cannot after the fact hope that the data will save you if you did not put the necessary infrastructure in place,” warns Ettiene Retief, the chairperson of the national tax committee of the South African Institute of Professional Accountants.
Retief told the annual Saipa Accounting Indaba that the most significant change in the South African income tax system occurred in 2001 when the country moved from a source-base to a resident-base tax system and capital gains tax was introduced. It became more difficult to hide from the tax authority.
The introduction of the Tax Administration Act in 2012 signalled another major evolution in the tax system. The Act unified and expanded the administrative provisions across the various taxes.
“Compliance took a whole new turn, with broad powers given to the tax authority to enforce legislation. Many believe the balance between Sars’s powers and taxpayers’ rights are now askew in favour or Sars.”
Another major change on the horizon is the implementation of a real-time tax system. Countries such as India have already embarked on this journey. Although South Africa has some unique challenges to overcome, it is coming.
“This train is not going to stop. You either get on or you will be run over,” Retief said.
The tax influencers
The most significant factors that will have the biggest influence on the tax system in the next few decades include digitalisation, population dynamics, the global public good, resources, and the tax base.
Revenue authorities have far more information available to them than was the case only a few years ago. There has been a major evolvement in the time it takes to issue tax assessments because of the amount of data available.
“We have also seen a rapid change in audit processes, with improved risk methodologies to target specific taxes and to identify systemic issues,” Retief said.
The South African Revenue Service (Sars) has been relentless in its move to digitalisation. The Covid-19 pandemic resulted in a significant increase in the use of digital communication channels.
South Africa has an ageing population. There is a disproportionate ratio of people who are dependent on grants and socially funded services to those who are employed.
“We need to factor in unemployment and a mobile workforce where people work remotely for any company in any country in the world. We also need to consider the impact of emigration on capital flows, entrepreneurship, and future employment opportunities,” Retief said.
This will impact future tax policies and tax collections. Currently, personal income tax is the biggest contributor to Sars’s tax revenue. Individuals are expected to contribute R647 billion in the current tax year, compared to R300bn from companies and R445bn from value-added tax. This is unsustainable, Retief said.
As more people retire and “dissave”, the tax burden will have to shift onto consumer and other derivative type taxes to provide a more robust revenue source. “We will have to diversify our tax system and reduce our reliance on one or two tax types,” he said.
Global public good
So-called corrective taxes such as the carbon tax have been introduced to reflect the social cost of carbon emissions. Retief said the next evolution will not only focus on emissions but also on global concerns around waste and biodiversity, health, sustainability, and the impact of crypto assets on the tax system.
The supply of electricity is South Africa’s biggest concern. It is bound to become a global issue with the increase in electric cars and the demand for electricity outstripping supply.
Water resources will become scarcer, with water wars breaking out in the not-too-distant future. The same applies to raw materials. There are already question marks about the skills and costs of our labour force. Will an outsourced labour model gain more traction in the years to come?
Every person who is not employed or emigrates represents a change in the tax base. Retief believes a “whole flurry of taxes” will be shoved in to compensate for the shift away from the reliance on traditional taxes, such as personal income tax and company income tax.
Managing the evolution
Retief said two major drivers will manage the future evolution of our tax system: trust in government and international co-operation.
The lack of trust in government generally ties in with the level of tax morality in a country. Globally, there has been a move towards a new tax system to address base erosion and profit shifting. “If we do not deal with these issues properly, we will have difficulty in transforming our tax systems,” he said.
Hopefully, we will not move back to the days of “silly taxes”, such as chimney tax, windows tax, and even beard taxes.
Amanda Visser is a freelance journalist who specialises in tax and has written about trade law, competition law, and regulatory issues.
Disclaimer: The views expressed in this article are those of the writer and are not necessarily shared by Moonstone Information Refinery or its sister companies. The information in this article does not constitute financial planning, legal or tax advice that is appropriate to every individual’s needs and circumstances.