Is Gigaba getting serious about SARS?
WITH RADIO SHOWS HOSTING DAILY CALLS FOR TAX REVOLTS, THE LINK BETWEEN SHRINKING COMPLIANCE AND EVIDENCE OF STATE CAPTURE IS CLEAR
Coincidentally, it seems, Finance Minister Malusi Gigaba has asked the president to appoint a commission of inquiry into tax administration just as the minister’s advisory committee on tax gears up to present its own 100-page report on tax administration next week.
That raises some intriguing questions about the role of the commission of inquiry and how and whether it will work with the advisory committee chaired by Judge Dennis Davis, who has confirmed that the minister will receive the committee’s report on Monday.
The minister’s unexpected statement on Tuesday that he had “approached President Jacob Zuma for an urgent establishment [of] an inquiry into the tax administration and governance of the South African Revenue Service [SARS]” was certainly a welcome sign that Gigaba recognises he has a problem.
It would be hard not to, given the cumulative R209bn revenue shortfall the minister now anticipates over the three years of the medium-term budget, starting with the 2017 R50.8bn shortfall. However, SARS has tended to blame the underperformance of the economy rather than its own underperformance.
The economy is obviously a big factor, with growth expected to fall well below even the modest forecasts former finance minister Pravin Gordhan assumed in February.
But PwC’s tax policy leader, Kyle Mandy, has done some very simple arithmetic, based on which he estimates the economy’s woes can explain only about R18bn of the 2017 shortfall. He says the rest, R33bn or so, relates to “increased tax avoidance, a slippage in the levels of compliance or other tax administration-related causes” — though a small portion of it could be because of overly optimistic tax buoyancy ratios applied by the Treasury in its original forecasts.
Mandy has simply taken the amount by which nominal (money) GDP is forecast to fall short in 2017 and divided that by the 26% tax-to-GDP ratio to get his estimate.
All the evidence points to tax administration as a big factor in the shortfall – in other words, to the efficiency, competence and integrity of the revenue authority itself, as well as taxpayers’ attitudes to it.
Gigaba’s announcement comes after the shock of the medium-term budget policy statement and just ahead of the S&P Global and Moody’s ratings updates on November 24, with markets speculating that if SA doesn’t get downgraded to junk now, it’s only because the agencies are waiting until after the ANC elective conference to do the deed.
The minister’s urgent request comes in a context in which SARS has unaccountably reinstated Jonas Makwakwa, he of the R1.3m in late-night ATM deposits, prompting calls from Parliament for the revenue authority to explain itself.
It’s a context, too, of books such as Jacques Pauw’s that suggest the revenue authority, like SA’s captured lawenforcement authorities, is not about to launch tax audits into anyone close to Zuma or the Guptas.
Just as it’s easy to blame the economy, it’s easy to blame taxpayers themselves for the decline in tax morality and compliance that have contributed to revenue shortfalls. But with radio shows hosting daily calls for tax revolts, the link between shrinking compliance and growing evidence of state capture is clear.
It is Zuma, however, who has to appoint a judge to chair the commission of inquiry. It’s unclear how soon he will do that, and how likely it is that he will set up a genuine probe by a skilled and aggressive team rather than a tame judge with a suitably timid commission.
One early indicator might be the interface with the Davis committee. The three-year-old committee has focused mainly on tax policy issues, but in 2017, turned its attention to SARS itself. It is presumably no good recommending changes to tax policy that would augment government revenues if the revenue service has no ability to implement them. Equally, if a more efficient and credible service could do a better job of collecting taxes, there might be little need for tax hikes.
The trouble is that where a commission of inquiry has the power to subpoena witnesses, an advisory committee has no such powers. The Davis committee couldn’t summon SARS commissioner Tom Moyane to provide information or give evidence. It had to ask him nicely, and one can but guess how those requests were treated. Chances are then that the committee would have been rather limited in its ability to get to the heart of what’s going on at SARS.
However, with or without SARS’s help, the committee’s team of experts has built up a deep knowledge of SA’s tax system and has done a great deal of work on policy and administration issues. By all accounts, Gigaba has met only occasionally with Davis and has not taken advantage of the committee’s advice and expertise in the way his predecessors did. But he should have. And it would be a waste of SA’s dwindling tax resources if the new commission of inquiry went off and duplicated, or worse whitewashed, the work of the existing committee.
In theory at least, a commission of inquiry has the power and potential to get to the heart of SA’s tax decline. In practice — we’ll see.