Nene shoots straight in telling SARS story
There was no trumpeting about R1-trillion in tax collections. Nor was there apparently any attempt to flatter the figures to make it look like the South African Revenue Service (SARS) had exceeded its revenue target.
Instead, with SARS commissioner Tom Moyane suspended and clearly on his way out at last, the tax authority told it straight on Tuesday in announcing the outcomes of the 2017-18 tax year, which ended at midnight on Saturday.
It was a transparent, if sobering, story. At R1.216trillion, revenue came in 0.06% short of February’s budget estimate, which the Treasury had revised down by more than R48bn from the February 2017 projection in response to weak growth and declining tax compliance.
This time it was Finance Minister Nhlanhla Nene, tasked with announcing the numbers at a briefing at SARS’s Brooklyn offices, who made it clear in every way that the revenue service’s rogue days under Moyane were over and that the finance minister’s authority over the taxman had been restored, as had the collaborative relationship between the Treasury and the tax authority.
But undoing the damage done to SARS over the past three years of Moyane’s rogue rule — and of Zuma-era economic malaise — will be a challenge. Tuesday’s briefing provided a flavour of that.
One notable feature of the revenue results was the pattern over the year. Revenue growth for the period to December was running well below budget estimates, but there was a sharp jump from December to February thanks to the higher business confidence and stronger currency that followed the ANC conference as well as higher commodity prices, all of which helped boost corporate tax collections. Had that continued, SARS would have made or exceeded target. Then came March, when revenue fell off a cliff, taking revenue growth for the year as a whole to 6.3%, down from 13.7% in the previous year.
The biggest reason for the March decline was, essentially, the way in which SARS managed to meet its target in 2016-17 — when it seemingly turned a blind eye to companies that backdated dividend declarations to get in before 2017’s hike in the dividend tax rate. SARS alluded on Tuesday to “extraordinarily high dividend declarations” in the previous year, which meant dividend taxes contracted by almost 11% in the latest year despite the hike in the rate.
The numbers show the three big taxes that contribute 80% of revenue — personal income tax, corporate income tax and value-added tax (VAT) — didn’t look that good either. Growth slowed to no more than half the rate seen in the previous year, with growth in VAT collections slowing particularly sharply, and all three came in slightly short even of February’s revised estimates.
A weak economy was a big driver, but so too was the decline in SARS’s effectiveness and credibility, as well as the deterioration in its relationship with taxpayers. Its habit in recent years of delaying refunds to boost revenues and ensure it met year-end targets hardly endeared it to cash-strapped taxpayers, making them even less likely to pay up.
But a second notable feature of Tuesday’s results was the much-changed approach of the new SARS to the refund issue. For the first time in a while, it reported the numbers transparently before and after refunds, which totalled R234bn.
VAT refunds grew 5.2%, higher than the 4.5% growth in domestic VAT collections or the 2.3% growth in import VAT.
That means, officials made clear, that the tax authority was catching up on the refunds it owes taxpayers.
But a third notable feature of the numbers was the clear evidence of declining compliance, morality and general taxpayer willingness during the era of Jacob Zuma and Moyane. The special amnesty on foreign assets that ended in 2017 didn’t bring in the multiple billions that were hoped for, raising just R2.9bn during the year.
But SARS and the Treasury are now particularly concerned about the “agency taxes” — the employment and sales taxes companies collect on behalf of SARS and are supposed to pay over.
Many of them clearly don’t nowadays, with new figures on Tuesday showing that only 69% of employers filed PAYE returns in the latest year, down from 84% a decade ago, while the proportion of companies filing their VAT returns has fallen from 79% to 61%.
Once they file, they tend to pay over, but clearly an increasing number are in the “non-filing” category.
Big companies mostly comply, officials say; it’s the smaller and medium-sized ones that don’t, sometimes for cash flow reasons in tough economic times but also, simply, to dodge paying, which in the case of PAYE is a criminal offence.
SARS plans to educate and to crack down.
But it will take time to rebuild compliance culture and practice. Given the layers of skill SARS has lost, it won’t be easy.
Nor is the old order yet cleaned out: Moyane has yet to be disciplined, and President Cyril Ramaphosa has yet to announce terms of reference or a head for the commission of inquiry that has been promised.
The tone and transparency of Tuesday’s announcement are at least a good start, and acting commissioner Mark Kingon is determined to “do the right thing”, speaking of a new dawn at SARS.
With a target in 2018 of 10.5% revenue growth, he will need to start pulling it right with speed.
THE SPECIAL AMNESTY ON FOREIGN ASSETS THAT ENDED IN 2017 DIDN’T BRING IN THE MULTIPLE BILLIONS THAT WERE HOPED FOR