COVID-19 to force tax arrears up P1.4bn
Mbongeni Mguni | Friday June 12, 2020 11:52
Finance and Economic Development minister, Thapelo Matsheka in April revised the expected 2020-21 budget revenues from P62.4bn to P48.8bn, with much of that decline coming from tax income and mineral revenues.
The BURS had initially targeted P44.4 billion in collections this year, with P15.4 billion from customs and excise revenue and P8.6 billion from Value Added Tax (VAT).
Mineral taxes were due to contribute P5.6 billion and vehicle taxes at least P503 million.
Local tax consultancy, Aupracon, this week forecast that overall tax collection would decline by P6.4 billion, while arrears owed by various taxpayers would rise by P1.4 billion to P5.4 billion due to the pressing economic conditions.
Aupracon researchers said tax debts, which usually arise from late payment of taxes, tax audits and rolling interest charges on initial debts, would increase more than the average of 22% seen over the years.
“Considering the anticipated harsh economic conditions that are synonymous with COVID-19, the spike in tax debts for the 2020-2021 year could stand at a staggering P5.4bn, putting on a much higher 35% annual increase,” the researchers said in a report issued this week.
“This increase is likely as taxpayers who may have intended to reduce their present tax debts in the current year may be constrained by financial challenges, resulting in more interest charges.
“Further, many taxpayers who had all along managed to bear their tax bills may be drawn aback by the economic contraction of 13.1%, which will obviously push tax debts up.”
The Aupracon researchers noted that with the coronavirus impacting cashflows, many taxpayers would find themselves increasingly unable to service creditor commitments, including tax debts.
“As a result, the economic drought brought about by the pandemic will certainly result in an astronomical jump in tax debts way above the annual average of 22% recorded in past years,” the researchers said.
According to data from the BURS, tax arrears have remained stubbornly high over the years despite collection efforts and discharges, remissions and waivers. For the year to March 31, 2018, the taxman was owed P3.3 billion with interest and penalties accounting for 66% of the figure and the balance comprising the principal tax.
Aupracon researchers said interest charges on tax debts were not subject to the ‘in duplum’ rule, meaning arrears could continue growing past the value of the principal debt.
“Tax Acts are worded in such a way that tax interest continues to run as long as the debt is not paid, which sometimes results in interest being higher than the principal tax owed.
“For the record, any balance due as tax bears interest on interest on a monthly basis, i.e. the interest is not based on the principal amount only but the total, being both the principal tax and interest previously charged.
“Experience shows that taxpayers can have interest charges, which could be double or thrice their original tax bills.”
Prior to the onset of the coronavirus pandemic, the BURS was intensifying a crackdown on tax defaulters and strengthening its collection activities, including mopping up outstanding arrears.
Although government has granted several tax concessions to help businesses recover from the pandemic, relief from tax arrears is not among these.