Tax bosses blamed for VAT hike
Treasury spills beans on R50bn shortfall amid big bonuses, missed targets
The true cost of mismanagement at the SA Revenue Service (Sars ) was laid bare in midweek as Treasury officials blamed it for the first increase in VAT in a quarter of a century.
The one percentage point increase to 15% was the centrepiece of former finance minister Malusi Gigaba’s budget in February as the government scrambled to fill a revenue shortfall of about R50bn.
The tax, which is levied on goods and services and does not take into account levels of income, tends to hit the poorest the hardest and stifles growth by depressing consumer spending.
Treasury officials also told the commission of inquiry into governance at the tax agency – chaired by retired judge Robert Nugent – that the under-performance had left Sars officials largely untouched. They still saw their bonuses increase 41% in a single year.
The inquiry is looking into, among other things, the reasons behind the hole of almost R50bn in revenue collection. Suspended commissioner Tom Moyane has attributed the performance to a worsening economy.
A presentation by the Treasury at the inquiry showed that revenue shortfalls had started in about 2014, peaking in 2017-18 at R49bn.
“The extent of the shortfalls have a significant impact on debt trajectory and the ability of government to meet its public expenditure commitments,” the Treasury team said in its submission.
Director-general Dondo Mogajane and deputy directorgeneral Ismail Momoniat also described how the relationship between Sars and the Treasury had broken down in recent years. Momoniat said that the trend before 2014 had been that revenue had generally outstripped expectations. Now, targets were only being revised downwards.
Treasury director for personal and income taxes Chris Axelson said the largest unexplained deviations were for personal and domestic VAT.
This correlated with statements before the commission from Sars officials that there was an increase in the number of people and companies failing to submit income tax and VAT returns.
He said that 40% of the latest shortfall could not be explained by economic performance or policy measures that could have affected revenue collection.
The presentation showed that while revenue was in decline, Sars’s spending on bonuses had increased, which had caused a clash with the auditorgeneral in 2017.
The swell in bonuses suggested that big bonuses were used to “win loyalty”, even though the revenue shortfall had already begun, Momoniat said.
Prof Michael Katz said overly generous bonuses for tax collectors had their own “philosophical problems”.
Mogajane said bonuses should have been subject to approval from the finance minister, but this had not happened because of “defiance” from Sars.
Evidence leader Carol Steinberg highlighted further negative findings against Sars by the auditor-general in his 201617 report, this time for misrepresenting its revenue collection figures in a draft annual report and claiming that it had met its target when in fact it had missed it by R300m.
Bonuses were then paid based on this “misleading” information.
Steinberg said Sars employees had been aware of this but were barred from disclosing it. She said employees were aware they had not met the target, yet the commissioner kept congratulating them on exceeding it.
The Treasury officials were asked by Nugent to provide it with a submission on how to tighten governance at Sars, after the Treasury indicated that too much power rested with the commissioner.
The commission is due to hear from consultancy Bain & Co, whose restructuring of the Sars operating model was blamed by some employees and senior officials who have testified to the commission so far for the destruction of the agency.