Gordhan blames SARS for role in revenue gap
• Shortfall partly due to ‘challenges’ in the tax authority • Treasury flags risk of greater uncertainty in collection
Finance Minister Pravin Gordhan has raised the alarm over the performance of the South African Revenue Service (SARS), which fell about R30.4bn short of the revenue target for 2016-17 set out in the previous budget.
The R30.4bn revenue shortfall is the largest since the 2009 recession and means that tax increases of R28bn are required for the coming year.
The Treasury has also flagged “heightened uncertainty regarding the path of revenue collection” as a major risk for public finances over the medium term, with Gordhan telling reporters on Wednesday that he had embarked on an intense set of engagements with senior management at SARS in the past month over his concerns.
The revenue-collection shortfall could not be attributed solely to the sluggish state of the economy and was also due to “challenges” within the tax authority, Gordhan said in an interview after a media briefing ahead of his budget speech in the National Assembly.
“We hope this will lead to some constructive outcomes in the interests of the country. Yes, I am concerned about the shape of revenue collection and that’s why the engagements,” he said.
Gordhan and SARS commissioner Tom Moyane have from the start had a difficult relationship, which led to the minister being pursued by the Hawks after Moyane had laid a criminal complaint against him.
Moyane, unlike previous commissioners, did not appear with Gordhan at the media briefing alongside Deputy Finance Minister Mcebisi Jonas, Reserve Bank governor Lesetja Kganyago and Treasury director-general Lungisa Fuzile.
Taxation was the main focus of Wednesday’s budget, with Gordhan announcing that the
wealthy — those earning more than R1.5m a year — would be taxed at 45% on all earnings above that threshold.
The levels of inequality in SA “were morally wrong and economically unsustainable”, Gordhan said.
The Treasury hopes to raise R4.4bn through taxing the rich and R6.8bn by increasing the withholding tax on dividends from 15% to 20%.
Limited relief of R2.5bn for fiscal drag of R14.6bn will raise R12.1bn more in tax.
Indirect taxes will raise an additional R5.1bn.
Tax practitioners were critical of the changes.
Mazars partner Mike Teuchert noted that after the changes, the top 6.6% of registered taxpayers would contribute about 50% of the country’s total personal income tax revenue.
Tertius Troost, also of Mazars, said that the increase in the dividend withholding tax, together with the existing corporate tax rate of 28%, would translate to an effective corporate tax rate of 42.4% (up from 38.8%).
“This essentially means that a business owner will be taxed at an effective rate of 42.4% if the owner wishes to take funds out of the company.”
The past year has seen a sharp deterioration in tax buoyancy — the relationship between gross tax revenue collections and economic growth — with tax revenues growing more slowly than the economy for the first time since 2009-10.
This was despite the introduction of additional tax measures in the 2016 budget, aimed at raising R18bn.
The government remained broadly within its fiscal targets with minimal “fiscal slippage” of 0.2% in the outer two years of the medium-term period. For 2016-17, the fiscal deficit is as projected in October at 3.4% and drops to 2.8% in 2018-19 and 2.6% in 2019-20.
The deficit targets were viewed favourably by economists and the credit ratings agencies on Wednesday.
S&P Global SA head Konrad Reuss said: “From a ratings point of view, what is important here is that the fiscal targets and economic growth assumptions are very much in line with our expectations.”