Compliance costs banks dearly

Pretoria – The constant stream of new data requirements by the South African Revenue Service from South Africa’s major banks is costing the sector millions of rand and affecting the economy and banking costs.

Tax heads at the banks raised questions during the recent Tax Indaba in Sandton about the relevance and governance process that is being followed when new information requirements are formulated.

Standard Bank group tax head Mardelle Kelbrick said the bank will be spending between R95 million and R100 million in the next few years to comply with the US Foreign Account Tax Act (Facta) and the new international Common Reporting Standard on the automatic exchange of financial account information.

South Africa signed an intergovernmental agreement with the US to implement Facta and endorsed the common reporting standard developed by the Organisation for Economic Cooperation and Development (OECD).

SARS executive employment relations Luther Lebelo said the financial sector supported the conclusion of the intergovernmental agreement with the US.

“The alternative would have been far more onerous on them. If not entered into, stringent withholding taxes would have been imposed on banks,” Lebelo said.

He said it is all part of the model to ensure that taxpayers correctly declared their national and international affairs. “The days of hiding money in tax friendly jurisdictions are over,” he said.

He did not answer questions relating to the cost for SARS to get it systems in place to meet the requirements of Facta.

Investec tax manager Cobus Viljoen said there has to be a balancing act. “There has been a lot of pressure on banking costs. When there is a request for additional information there is also the question of relevance and there is the question of cost.”

Marelize Loftie-Eaton, head of external tax and tax administration risk and compliance at FirstRand, said it will cost the banks between R30 million and R120 million to be compliant with Facta alone.

Gary Eaves, head of tax for South Africa and emerging markets at Old Mutual, acknowledged the need for different electronic forms and data requirements.

However, the rules change often and at short notice, making it expensive to be compliant. “The expense is not only in the form of the contractors we have to pay to make the software changes, there is also a huge opportunity cost,” he told delegates at the Indaba.

“When they are working on SARS-related issues, they cannot work on developing new products and we do not get to grow our business.”

He said with the new withholding tax on interest requirements it will cost Old Mutual R5 million to build the platform to recover the tax from collective scheme members. However the total amount collected in six months had been R30 000.

Eaves emphasised the need for some oversight in terms of new data requirements. “Our request would be that there should be something that measures the total cost of compliance to the perceived benefit of getting the extra information.”

Lebelo said it was “quite possible” for the implementation cost to exceed immediate revenue expectations. However, he said, revenue is ultimately generated either through changes in the behaviour of taxpayers or long term revenue flows.

On the automatic exchange of information system he said there are still no details on the costs, but said it will be shared by jurisdictions using it.

Kelbrick said concerns from the financial sector must be seen in the context of several other regulatory projects required of the banks. “Many of the reforms are happening at the same time and we have to prioritise what goes first and what can we afford.”

According to Lucia Hlongwane, head of tax at the Barclays Africa Group and vice president of the SA Institute of Tax Professionals, it is not merely a matter of submitting the required information to SARS.

“Once we have submitted the information we find that (the systems at) SARS is not properly set up and then we have to resubmit the information,” she said.

“It is taken for granted that we have the necessary resources to go back and resubmit the information and meet the deadlines that come with it,” Hlongwane added.

IOL