(Delwyn Verasamy/M&G)
The South African Revenue Service (Sars) is under increasing pressure to improve its service and restore public trust, according to PwC’s latest Taxing Times Survey.
The 2024 report, which surveyed 206 corporate taxpayers, indicates discontent over Sars’ extended timelines, slow processing of verifications and increasingly aggressive stance on penalties.
South Africa faces a tax revenue shortfall of R22.3 billion, as announced by Finance Minister Enoch Godongwana in his medium-term budget policy statement last month.
According to the survey, verification processes with Sars have become synonymous with lengthy delays and costly uncertainty for businesses.
Despite the revenue agency’s efforts to streamline compliance, PwC’s report suggests that verification timelines continue to exceed reasonable expectations, leaving many taxpayers in a prolonged state of limbo.
The survey found that 48% of corporate income tax verifications took one to three months to complete — a timeframe that many businesses already consider excessive.
But 27% reported even longer waits of three to six months, which, while being a slight improvement from previous years, still represents a significant drain on resources and planning.
Eight percent of respondents said corporate income tax verifications endured for more than 12 months, a figure that was 3% in 2023.
Extended verifications not only impose financial burdens on businesses but also create operational uncertainty as companies wait to see if additional taxes or penalties will be imposed.
The sluggish pace of the verifications, according to PwC’s analysis, raises questions about Sars’ ability to efficiently manage its workload, despite recent restructurings and new hires.
Aggressive penalties
Adding to taxpayer frustration is Sars’ approach to penalties, specifically understatement penalties (USP), which are levied when taxpayers are found to have under-reported income.
This year, PwC introduced a new survey question on Sars’ stance toward these penalties, and the responses suggest a perception that the revenue service is increasingly punitive.
The survey shows that 44% of participants view Sars as “aggressive” in its application of USPs, while 27% consider the agency “moderately aggressive”.
The perceptions are grounded in experiences where Sars has reportedly imposed penalties based on strict or disputed interpretations of tax law, often leaving taxpayers little choice but to undertake lengthy and costly objections.
Only 24% of respondents felt the penalties were fair or “completely fair”, while 4% said penalties were based on Sars’ misunderstanding of the taxpayer’s financials.
Sars’ apparent shift toward a more punitive approach is probably a response to the agency’s ongoing battle against non-compliance, but PwC’s findings suggest the strategy is eroding taxpayer trust rather than bolstering compliance.
For businesses already managing high costs, penalties that feel punitive rather than corrective add to the perceived adversarial relationship between Sars and taxpayers.
Inconsistent adherence to service charter timelines
In 2018, Sars introduced its Service Charter, promising taxpayers transparent timelines and a reliable service experience. But six years on, most corporate taxpayers feel the promises are rarely met.
In the survey, only 3% of respondents “strongly agreed” that Sars’ service had improved, while nearly half expressed outright dissatisfaction.
Sars’ inconsistency in adhering to timelines, particularly those mandated by its own charter and the Tax Administration Act (TAA), has exacerbated taxpayer frustration.
About 61% of survey respondents either “strongly disagree” or “disagree” that Sars reliably respects these timelines — a slight improvement from prior years but still an indication that delays remain widespread.
In the additional comments section of the segment, taxpayers frequently noted the problems they face in receiving timely responses from Sars, with some saying they often had to follow up multiple times to receive even basic updates.
According to one respondent: “Sars just disregards all deadlines established in the TAA and the Service Charter with no repercussions.”
Sars’ modernisation efforts appear to have had some effect, with about 54% of taxpayers saying that compliance has become easier because of measures such as automated assessments.
While this shift aligns with Sars’ second strategic objective of simplifying tax compliance, nearly half of respondents still report compliance difficulties.
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