Although Company Income Tax (CIT) has remained the third largest contributor to total tax revenue after personal income tax and VAT in the tax statistics review publication, its relative contribution has declined from the pre-recession peak of 26.7% in 2008/09 to only 18.1% in 2016/17.
Total CIT collections amounted to R207.0 billion in 2016/17. While this was higher in nominal terms than the R167.2 billion collected in 2008/09 before the global financial crisis, it still represented a decline in real terms.
The decline is considered to be largely attributed to the 2008/2009 global financial crisis, which had a negative impact on many companies’ profitability, as well as the deterioration in the prices of commodities of iron ore and platinum in the mining sector and oil price fluctuations in the manufacturing sector. This is further demonstrated by the reduction in the CIT-to-GDP ratio, which decreased from 6.9% to 4.7% during this period.
An analysis of Company Income Tax (CIT) returns assessed for the 2015 tax-year and CIT collections in the 2016/17 fiscal year further reveal the following:
- There were over 3.3 million companies registered for CIT as at 31 March 2016 of which 932 118 were expected to submit income tax returns for the 2015 tax-year. Sadly, the majority of the remaining companies were inactive or dormant.
- As at June 2017, 714 422 companies were assessed, and 129 867 were assessed as Small Business Corporations (SBCs) being taxed at sliding scale tax rates instead of the fixed company tax rate of 28%.
- Only 25% of the 714 422 companies assessed had positive taxable incomes. A further 47% had taxable income equal to zero and the remaining 28% reported an assessed loss.
- The main contributors, according to the report, were 340 large companies, which constitute 0.2% of companies with positive taxable income. They had taxable income of more than R200 million and were liable for 56.8% of the CIT assessed.
- The second largest contribution group was the Financial intermediation, insurance, real-estate and business services sector, which comprised 184 103 (25.8%) of the assessed companies, and which were liable for 40.5% of the CIT assessed. However interestingly this is despite this sector also containing the highest proportion of companies with assessed losses in 2015 (14.5%), followed by the Construction sector (8.3%) and the Agencies and other services sector (6.1%).
Capital Gains Tax (CGT):
- CGT is not raised separately from CIT. However, the tax statistics report reveals that it did follow a different pattern than normal CIT. CGT had a decline from 2010/11 to 2011/12, before recovering strongly in 2013/14, partly as a result of the increase in inclusion rate from March 2012, when the inclusion rate for companies rose from 50.0% to 66.6%.
- From March 2016, the inclusion rate was hiked again to 80.0%. However, in 2016/17 CGT of R17.1 billion was raised of which R9.6 billion was attributable to individuals and R7.4 billion to companies. This unfortunately only shows a smaller than expected increase of R0.4 billion (2.3%) on the R16.7 billion raised in 2015/16.
Payment of tax:
- Although assessments for a tax year are lagging as SARS allows for returns to be filed 12 months after a company’s year-end, SARS has changed its game in recent years with reference to the provisional tax payment system to ensure earlier payments of the final CIT liability.
- Encouragingly the collection of provisional tax has grown, since it dropped to its lowest level of R135.1 billion in 2009/10, by a compound annual growth rate (CAGR) of 4.9% from R137.1 billion in 2010/11 to R204.8 billion in 2016/17.
- The value of provisional tax payments improved substantially as a result of a more rigorous application by SARS of paragraph 19(3) of the Fourth Schedule to the Income Tax Act, whereby SARS can call for an increase of estimates. Furthermore, with the introduction of the 80% rule for second provisional tax payments, third provisional tax payments have also significantly been reduced from 13% of total provisional tax collections in 2009/10 to 3% in 2017.
- It is also interesting to note that the largest groups of CIT provisional taxpayers have financial years ending in February, March, June, September and December and companies with June and December year-ends contribute approximately 60% of the total provisional tax payments for any fiscal year.
The above tells a story whereby SARS, through good cash flow management systems and implementation programmes, has been able to collect more Tax revenue than expected in difficult economic times. However, it is still concerning that the largest contributors are still just a select few. With company profit margins and cash flows under serious strain, SARS is not left with many other options than now going for the hard targets!