Taxi Industry and the complexity of Tax Compliance

By Mbavhalelo Mabogo, CEO & Founder, Quickloc8

Taxi Industry and the complexity of Tax Compliance
Mbavhalelo Mabogo, CEO & Founder, Quickloc8

The South African taxi industry, a cornerstone of the nation’s transport landscape, has long been under scrutiny for its apparent underpayment of taxes. However, a closer examination reveals a more complex reality. In 2021, the industry paid only R5 million in annual Corporate Income Tax (CIT). This is a small amount compared to the industry’s estimated annual revenue of R90 billion.  Yet, it is crucial to understand the intricacies that lead to this apparent disparity.

The South African Revenue Service (SARS) has publicly acknowledged that the perception of the taxi industry avoiding taxes is not entirely accurate. A significant portion of the confusion stems from how the industry reports income on its Corporate Income Tax (CIT) returns. The industry often reports income from taxi operations under a generic income source code, rather than correctly classifying it under the taxi business. This results in a lower reported CIT amount than expected, which contributes to the perception that taxi owners evade taxes.

Taxi operators’ financial contributions to tax extends beyond the realm of CIT. According to SA Taxi, the current leading financiers for the taxi industry, the industry estimated contribution around R1 billion in value-added tax (VAT) on vehicle sales annually. It also shoulders R7 billion in fuel levies and R4 billion in road accident fund (RAF) levies, all of which contribute to the upkeep of the nation’s roads. These contributions demonstrate the industry’s tangible contribution to public services, despite misconceptions about their tax payments.

The intricate tax declarations facing the taxi industry are also deeply rooted in its asset ownership structure. Many taxi operators hold their vehicles in a personal capacity rather than through juristic companies capable of submitting financial statements, declaring, and claiming VAT, and reporting their employees’ profiles to SARS. It is important to note that, for a long time, to operate a taxi business, there has been no requirement for the existence of a juristic company or adherence to tax compliance. It is no surprise that taxi owners do not have comprehensive appreciation and knowledge about the nuances of tax filing, such as the reasons, timing, and methods involved. Any intervention in addressing the industry rejigging will require education and upskilling of the industry to close this apparent gap.

In pursuit of rearranging the tax position of the industry it is important to shift the discourse around taxes from mere compliance to a more educational aspect within the taxi sector. For example, many taxi owners may not even be aware of programs such as SARS’s Voluntary Disclosure Program (VDP), which helps taxpayers who are in default get their tax affairs in order. SARS should spearhead this education by working closely with the Department of Transport, SANTACO, National Taxi Alliance through education drivers at association levels.

The taxi industry has been grappling with significant financial challenges, which have effectively transformed what was once a prosperous sector into one marked by modest profits, akin to what is colloquially known as “ramen profits.” To illustrate this, consider the case of a taxi owner operating a Toyota Quantum for daily commuter transport, covering over 200 kilometres each working day. They now contend with an additional monthly expense of R5,000 in fuel costs compared to pre-Covid rates, reflecting a staggering 40% surge in fuel prices. These escalating costs, compounded by the high expenses associated with vehicle maintenance, parts, vehicle impoundments, high-interest rates on loans, and the looming threat of vehicle repossessions, all transpire alongside a backdrop where revenue generated from commuter fares has essentially remained the same. As a result, these challenges pose a significant obstacle to achieving a positive Net Profit After Tax (NPAT) to their business. There is simply no profit to pay tax from.

In addition to these mounting cost pressures, the existing tax regulations are ill-suited to accommodate the unique configuration of the taxi industry. For instance, taxi owners operating only one or two vehicles will often find it challenging to meet the compulsory SARS VAT registration threshold of R1 Million. Furthermore, pricing for commuter fares is typically set at the association level, making it difficult for taxi owners to simply add VAT to these fares. Even if taxi owners manage to navigate these complexities and meet the VAT requirements, the current tax regulations still present a major hurdle by disallowing organizations and individuals to reclaim VAT expenses on their most critical cost, namely, fuel.  It is thus judicious to consider instituting a Quid pro Quo fuel tax exemption or diesel refund for the taxi industry similar to those enjoyed by the farming, mining and rail industry. This can act as a means to alleviate some of the financial burdens burdening taxi operators and to incentive industry transformation and adoption. Technology in this instance would be key in monitoring the fuel expense, taxi movements and also automatically submitting refund claims.

In addition to its tax benefits, technology should assume a central role in not only delivering operational advantages but also in tackling the widespread problem of misinformation and the frequently laborious aspects of tax-related affairs within the taxi industry. Through the provision of easily accessible and user-friendly educational materials, digital platforms have the potential to simplify tax compliance, enabling taxi operators to gain the necessary knowledge to navigate this intricate landscape with confidence.

In the 1990’s the South African Government invested heavily on the multimedia health and social justice initiative called Soul City. The initiative was a success in raising awareness about critical health issues such as HIV/AIDS, sexual and reproductive health as the effort included Health Education and promotion, Entertainment and education, community engagement, advocacy and policy influence. The effort required to reconfigure the relationship between the taxi industry and their tax contribution will require effort at a similar level as the Soul City campaign and more. The truth is that Umkhulu lo msebenzi and a mere evolutionary process won’t cut it – this level of complexity calls bold moves. It’s important to show bias to action and not a “lets wait and see” approach. Building proof of concepts is key in inspiring belief and adoption. And priority should be given to taxi associations that exhibit the greatest eagerness to adapt and embrace change, rather than waiting for universal readiness.