Steep cost of Sars rebuild at budget’s heart
Moyane book-keeping bolsters proposal to fire him forthwith
● His predecessors quoted everyone from poet Ben Okri to rapper Kendrick Lamar.
But, delivering his medium-term budget speech on Wednesday, finance minister Tito Mboweni turned to the Bible for inspiration, quoting Isaiah chapter 58, verse 12: “Your people will rebuild the ancient ruins and will raise up the age-old foundations; you will be called repairer of broken walls, restorer of streets with dwellings.”
Mboweni was talking about the need to repair towns, streets and pipes, and to tackle the corruption, greed and weak governance at municipal level that was hampering this.
But he might as well have been talking about the corrupting of the South African Revenue Service (Sars) and the urgent need to rebuild that institution from the ruins.
The full extent of the damage that suspended commissioner Tom Moyane did to Sars during his tenure is only now emerging through the Nugent commission.
But it was at the core, too, of Wednesday’s much-worse-than-expected budget numbers, which reflected the steep cost of cleaning out the rot at Sars as it finally pays taxpayers the many billions of rands in refunds it owes them and recalculates its liability for future years.
Holding back on refunds enabled Moyane to appear to be meeting revenue targets — something he trumpeted constantly, and continues to trumpet in his aggressive efforts to avoid being fired. If nothing else, the revenue figures in Wednesday’s budget should provide compelling support for the commission’s recommendation that Moyane be fired, immediately, for mismanagement, even without evidence of misconduct.
Meanwhile, however, SA has to take the budgetary pain of cleaning up Sars and of starting to rebuild it from the ruins. The one upside is that the R20bn in refunds that Sars will pay out this year will put money into the pockets of small businesses and individuals, providing at least some stimulus for the economy.
And as Mboweni said: “We cannot continue to function effectively if the tax collection authority is broken.”
The numbers show just how broken. The Treasury has had to pencil in a cumulative revenue shortfall of as much as R85bn for the next three years, starting with R27.4bn in the current year — much worse than anyone in the market had anticipated. Refunds are most of that, including a one-off R11bn to clear the backlog of VAT refunds that has starved many smaller businesses of working capital and which was the subject of a highly critical report by the tax ombudsman a couple of years ago.
The other R7.4bn reflects a very weak economy, in which corporate income tax collections are expected to come in lower than February’s budget estimates and Treasury has had to cut the projected take from most taxes over the next three years in line with lower growth.
The Treasury has stuck to its spending plans, so it is the revenue that’s the reason the deficit has blown out to 4%-plus over the medium term, and the public debt ratio has worsened. And though worse-than-expected economic growth is a factor in the projected revenue shortfall, the main reason is that the Treasury is only now discovering the extent to which refunds were manipulated or just underestimated while other tax items were overestimated.
That not only made it seem Sars was meeting targets, it also undermined the forecasters’ ability to project tax collections accurately. That the lines of communication between Sars and the Treasury were sundered in the Moyane era didn’t help matters. And as Treasury officials emphasise, the budget estimates of revenue were never supposed to be targets in the way Moyane took them up.
The medium-term budget book shows that the Moyane-era habit of holding back or underestimating VAT refunds due to taxpayers saw Sars’s credit book increase from R21bn in 2013/2014 to a peak of R34bn in 2015/2016 before falling to R30bn. But Sars data indicate it should normally be only about R19bn if verified VAT refunds are paid back without delay, and the budget book promises that in future Sars will pay out within 21 working days. Says Treasury deputy director-general Ismail Momoniat: “With the change in leadership we now have greater transparency.”
Acting commissioner Mark Kingon has made it clear he is in clean-up mode and aims to rebuild taxpayers’ faith in the system. He and his team are working with the Treasury, which has pencilled in more realistic revenue projections for the medium term. But it will take time to fix SA’s broken tax authority, and the appointment of a permanent Sars commissioner is urgently needed to get the rebuilding process under way. That will no doubt be one of Mboweni’s first priorities.
The Treasury is discovering the extent to which refunds were manipulated