Deregulation would open door to fraud

The main source of anger for compliant taxpayers is wasted government expenditure.

Further anger results when taxpayers get little thanks for doing their best to stay compliant but feel that they become soft targets for South African Revenue Service (SARS) inspections.

Some smaller businesses wish they had never registered because SARS would never have caught up with them. Employed taxpayers say: “Why don’t I resign and trade without being registered?”

The widespread call is to deregulate and simplify the business environment. This is even a goal of the National Development Plan. But few realise that SARS is probably the biggest target for fraud in South Africa. And any proposal to deregulate, no matter how logical or brilliant, has to be considered from the perspective of the opportunities it may create for fraud.

Something as simple as the medical rebate has been abused on a wide scale by advisers creating multiple medical dependants when submitting tax returns. But that is nothing compared to the billions in blatantly fraudulent VAT claims submitted to SARS every month. Some say VAT numbers should be available in 24 hours through e-filing, and that VAT refunds should be paid out immediately and SARS audits conducted later. But if SARS deregulated the VAT system, the resultant fraud would bring South Africa to its knees.

The 2013 tax amendments contain provisions that attempt to streamline voluntary VAT registration. Registration will be allowed if supplies historically exceed R50000 a year. New businesses will be allowed to register if supplies are likely to exceed R50000 a year, but they will be required to account for VAT on a payments basis until the R50000 threshold is exceeded. A range of businesses will be identified that will be allowed to register although turnover will not exceed R50000 a year.

The old general sales tax was subject to rampant fraud through the abuse of tax exemption certificates. The VAT system has done much better, but it is by no means foolproof. Perhaps the answer would be to put a few more fraudsters in jail. Fraudulent VAT refund claims are a worldwide problem and no tax authority is completely on top of it.

Originally published in the Sunday Times: Money & Careers Tax Talk column.


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