The tax filing season is a significant opportunity to improve the tax statistics and use it as a catalyst to create fairer trading conditions for small businesses through digitisation and innovation. Expanding the taxpayer base is a vital step in the short-term recovery and long-term development of our economy.
By Colin Timmis, Xero country manager, South Africa
Filing taxes remains one of the biggest pain points for small businesses. It’s historically been something that many small businesses struggle with because of a lack of clear understanding around the tax rules and previously inefficient interactions with The South African Revenue Service (SARS).
It’s pivotal that we create an environment that makes this process easier and clearer, while building trust and confidence in the tax filing system.
SARS is moving in the right direction by introducing eFiling options and integrations with accounting software providers to reduce the time burden and make it easier for SMEs and their advisors to connect to SARS. But there is still a huge gap between the number of SMEs and those paying taxes.
Worryingly, tax revenue collection (for the fiscal year 2020/21) was down 7.8% compared to the previous year. Small Business Corporation Tax (SBC) is also down compared to the previous period. The contribution of Corporate Income Tax (CIT) to overall tax revenue over the last 10 years has decreased from around 30% to 16%.
The benefits of tax filing
Effective tax collection and expanding the taxpayer base are key ingredients to fostering economic growth. If more businesses pay their taxes, more money can go towards improving the economy and enabling more businesses and communities to thrive.
We must support small businesses to file their taxes and rebuild taxpayer confidence in order to improve our tax statistics and grow the economy. Small businesses are the lifeblood of the economy and we know that when those in small businesses are successful, their families and communities are in a better position to thrive.
Technology can help to close the gap
The government needs to invest in and promote the benefits of technology and work together to create a more connected SME support system. Technology firms and small business policymakers need to come together to help small businesses to make the most of the right technology.
As part of their strategic plan, SARS has committed to making it easier for taxpayers to comply with their obligations, modernising their systems to provide digital and streamlined online services, and working with stakeholders to improve the tax ecosystem. This is making it easier for accounting software providers to integrate VAT and Payroll eFiling directly into their system, like Xero has – enabling small businesses to submit returns in a few simple steps.
Technology can help join the dots between SMEs, their accountants, banks, government, funders, and technology companies – the key enablers of the small business community. Now, we don’t see enough collaboration happening between all these stakeholders and this is impacting the growth of our SME economy. We need to see more openness, awareness and adoption of technology that drives and enables collaboration with the government.
The role of accountants during tax filing season
Accountants and bookkeepers play an important role in supporting small businesses with filing their tax returns. It is an incredibly busy time for them as they’re juggling clients needing support with taxes, as well as their day to day work.
Having both an advisor and client using the same accounting software makes a world of difference in preparing a tax return. Having a cloud accounting system that takes in data regularly and provides a deep understanding of how your business is doing throughout the year puts you in a good position when the time comes to file. Digital bank feeds alone can save you and your advisor hours of time manually reconciling transactions at the last minute.
By continuing to drive better connections between advisors, small businesses and SARS, we can leverage the opportunity to improve our tax statistics, expand the taxpayer base and improve the economy in the long-term.