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Large companies avoiding tax in SA

The SA govt says large multinational companies use complex transactions to illegally reduce tax payments.

Eyewitness News report

CAPE TOWN - South Africa has accused large multinational companies of using complex transactions to illegally reduce local tax payments, costing Africa's largest economy billions of rand.

"We have detected an increase in the use of cross-border structuring and transfer pricing manipulations by businesses to unfairly and illegally reduce their local tax liabilities," Oupa Magashula, commissioner at the South African Revenue Service,(SARS) told parliament's finance committee on Tuesday.

African countries are vulnerable to higher revenue loss through tax crimes because of a lack of knowledge on detecting and prosecuting sophisticated evasion tactics.

"A company will always try and actually maximize its after-tax profit... and a one or two percent movement one way or the other could have a decisive impact on profits," said Bob Head, a chartered accountant and special advisor to Magashula.

"There are some people in the business of trying to help companies not pay tax and they will keep on inventing new schemes," Head said.

SARS has raised more than R5 billion through audits and additional assessments on large corporations, but it was difficult to quantify the exact cost to government, a tax official said.

SARS has ratcheted up targeted interventions in high risk areas, including transfer pricing by large businesses, incomes of wealthy South Africans and the illicit cigarette industry.

South Africa has 12 million registered entities, including individuals, companies and trusts - and collected 743 billion rand in taxes in the last financial year.