Treasury rallies to aid of a recovering SARS
Ministry springs into action ahead of inquiry into tax affairs
● The National Treasury plans to play a more active role at the South African Revenue Service as it works to recover from poor administration and perceptions of corruption that contributed to its missing its revenue collection target yet again.
Speaking this week after announcing preliminary revenue collection figures, Finance Minister Nhlanhla Nene told Business Times that he had tasked Deputy Finance Minister Mondli Gungubele with spearheading engagements with SARS.
“He will meet with them on a regular basis,” Nene said on Tuesday after revealing that the revenue service had missed the collection target by R700-million for the 201718 financial year.
SARS collected R1.216-trillion. The outcome is expected to widen the budget deficit announced in the national budget in February. The figures are still subject to an audit.
Gungubele will assist the revenue service to “come up with a clear diagnostic”, although many of the challenges and leakages in the system were known, Nene said.
Challenges at SARS include inefficiencies in collection and poor tax morality.
The intervention is separate from a commission of inquiry into tax administration and governance that President Cyril Ramaphosa confirmed in February. He is expected to announce further details soon.
Nene said: “We are not going to wait for the commission of inquiry outcome.”
Recommendations from the Davis tax committee inquiry would also be followed up, but a priority was to beef up the efficiency of SARS in closing the tax gap. This would be followed by a focus on fixing tax morality “by making sure compliance is not just by enforcement but also by co-operation”, the minister said.
SARS said against a backdrop of weak consumer and business confidence in the past year as well as poor economic growth and low tax morality, domestic VAT grew at a muted 4.5% compared to 8.1% the previous year. Pay-as-you-earn grew at 8.6%, well below the 9.2% achieved in the previous two years.
PAYE, net VAT and corporate income tax contribute 80% of tax revenues, which in turn fund the government’s programmes. Given the shortfall in tax collection, over the past two years the state has had to reprioritise and cut spending to, among others, the Department of Defence and infrastructure grants.
SARS said that last month revenue collections contracted on a month-on-month basis after growing between December 2017 and February this year on positive momentum in business confidence following changes in the government and the ANC. As a result, annual aggregated revenue growth was 6.3%.
Dividend taxes contracted by R3.9-billion. Extraordinarily high dividends were paid in the previous financial year by companies ahead of the increase in the dividends tax rate to 20% from 15% previously. In March, customs also closed their financial statements two days earlier than normal due to the public holiday. As a result, about R1.8billion will be declared in the new financial year.
The special voluntary disclosure programme, which has been active for the past five years, yielded R2.9-billion after receiving 827 applications from individuals with previously undisclosed offshore wealth.
SARS may invoke a clause in the Income Tax Act to request additional payments from provisional taxpayers if after assessment it was determined that they had paid less tax than had been due, it said.
Randall Carolissen, head of research and of the Tax, Customs and Excise Institute at SARS, said plans to reinstate tax courts to crack down on those wilfully avoiding tax were well under way.
Those avoiding tax were “a niggling minority”.
Regardless, SARS will proceed with the tax court. “Our political principals have agreed. We do have the infrastructure. It’s just a question of we need to populate the infrastructure with human beings. We want to see the impact in this tax year.”
Faith Ngwenya, technical executive at the South African Institute of Professional Accountants, said the undercollection was likely to expand the budget deficit further, from R48.2-billion to R48.8-billion.
This would be the second successive year that SARS has missed a target after it undershot collection by R30.4-billion in the 201617 financial year.
Ngwenya said, however, that collections may be better in the new year. “The dividends tax should now be back on par because it’s already a year into the 20%, unless we see a number of companies . . . [looking at] other ways of capitalisation of their shares so that they don’t declare dividends and pay 20% upfront.”
Nazrien Kader, managing partner for Deloitte tax and legal services in Africa and lead for financial services tax, said the government may not have additional savings for the expanded revenue shortfall. “The government will have to increase borrowings to address the shortfall. I don’t expect further tax proposals in the short term, given the increase in the VAT rate, which South Africans are still coming to terms with.”
Kader said changes in SARS leadership, a decrease in interest rates that may boost consumer spending and a recent decision by Moody’s to retain South Africa’s investment grade had increased expectations of a more positive tax collection result in the new financial year.
She said SARS now had to revert to previously successful methods to improve revenue growth, such as the return of the Large Business Centre, which focused on driving revenue from business.
The Large Business Centre, established in 2004 to provide customised service to large corporate taxpayers, was collapsed along with several other specialist units under Tom Moyane, who was appointed commissioner in 2014 and suspended last month.
But the onus also lies with the government. “A lot more needs to be done in terms of growth, policy certainty and a commitment to fiscal consolidation in order to achieve the target,” she said.
Deputy Finance Minister Mondli Gungubele will meet with SARS on a regular basis Nhlanhla Nene Finance minister