Dividend windfall salvages SARS target

An unexpected R5.4bn dividend tax windfall enabled the South African Revenue Service (SARS) to hit its target for the latest tax year, despite shortfalls in other taxes — raising questions about what might come to SARS’s rescue as it works to meet even tougher targets in the coming year.

The dividend windfall, which was thanks mainly to the increase in the dividend tax rate from 15% to 20% announced by former finance minister Pravin Gordhan in his February budget, has also prompted concerns that some companies may have backdated dividend declarations to take advantage of the lower tax rate — and that SARS may not have been vigilant enough as it raced to meet its targets ahead of the end of the tax year on March 31.

SARS reported last Monday it had marginally exceeded February’s budget target, which had been revised down by R30bn compared to last February, with SARS commissioner Tom Mo- yane calling the revenue result “an outstanding achievement”.

However, a detailed look at the numbers shows that collections in almost all the tax categories were below even the revised February estimates, and that without the sharp 30% jump in dividend tax collections, SARS would have come in billions of rand behind target.

The increase in the dividend tax took effect on budget day, on dividends declared but not yet paid out, so in theory, companies should not have been able to declare extra dividends or bring payouts forward to take advantage of the lower rate.

However, Moyane said last Monday, the 30% year-on-year growth in dividends reflected “the forestalling effect in anticipation of rate hikes”.

Tax experts said that while listed companies could not have changed dividend declarations, which had already been announced, unlisted private companies could have backdated dividends. There are also concerns that SARS might have

been pushing taxpayers to accelerate payments. “The mere fact of such a flood of dividend tax collections in March should in itself have raised red flags for SARS,” said PwC tax director Kyle Mandy, who said that he was “very, very surprised” that SARS had met its targets after poor February numbers.

SARS executive Randall Carolissen said SARS was looking closely at the dividend payouts, even though the windfall was welcome in a difficult year.

Some companies might have been expecting the increase in tax rates in the budget. SARS had also noticed quite strong growth in companies’ dividend payouts, especially in the past two to three years, which Carolissen said “speaks to the lack of investment in the economy”.

It appeared that companies have been paying out dividends to shareholders to reduce large cash reserves, in an environment in which investment spending has declined.

Economists are now wondering what chance SARS has of meeting its targets for the tax year that started this month to 2018, which project growth of 10.5%, up from the outcome of just 7% in 2016-17. The tax buoyancy ratio, which reflects how fast revenue grows relative to economic growth, came in at just 0.9% for the latest year, but budget estimates project it jumping to 1.4% in fiscal 2017-18.

SARS numbers show that domestic value-added tax (VAT) collections were the only tax category that beat February’s revised budget estimates for 2016-17, with personal income tax, corporate income tax, import VAT and customs duties all coming in short of target.

However, VAT refunds were R1.2bn higher than the estimate, with SARS making efforts to respond to criticism of its tardy refund payments. Carolissen said R700m of refunds were paid over on 31 March alone.