Tito hopes Sars will ride to the rescue
Tax collector signals it is back on the beat, chasing politically connected dodgers
● On the eve of this week’s budget speech, the SA Revenue Service (Sars) swooped on self-confessed tobacco smuggler Adriano Mazzotti and seized luxury cars and other assets to pay for his tax debt, which is reportedly almost R34m.
It was a clear signal that Sars was back on the beat, tackling the damage done to its willingness and ability to chase politically connected tax dodgers during the tenure of former commissioner Tom Moyane.
Moves are under way to appoint a new permanent commissioner and rebuild Sars’s capacity. The agency launched a new illiciteconomy unit in August last year, which is looking at 58 cases. Its first priority is illicit tobacco, which a Treasury study found is costing at least R2bn-R3bn a year in lost tax revenue, but the new unit will also be looking at illicit fuel as well as clothing and textiles.
Though Moyane disbanded the old investigative unit — the so-called rogue unit — using it as a platform to launch hugely damaging attacks on Sars officials and Pravin Gordhan, most tax authorities globally have such units and the intention is that the governance and transparency of the new unit will be robust enough to prevent machinations such as Moyane’s in future.
Also being re-established is the largebusiness centre, which Moyane disbanded with dire consequences for Sars’s ability to optimise tax collections, particularly from large businesses and high-net-worth individuals. The centre is expected to be set up by April 1, with specialists being recruited to staff it.
The government is considering a comprehensive response to the report of the recent Nugent commission into Sars, but under the leadership of acting commissioner Mark Kingon the tax authority has not waited to start on urgent reforms designed to restore its integrity and effectiveness.
This week’s budget figures demonstrated how urgent the task is — and also how costly it is proving in the short term to undo the damage. October’s medium-term budget estimated a R27bn shortfall in revenue collections for the 2019/20 fiscal year, mainly because Sars has had to pay back the refunds that under Moyane were underestimated and not paid out to taxpayers in time, enabling him to say he was meeting revenue targets even though this was not really the case.
This week’s budget added another R15.4bn to the revenue shortfall, bringing the total for the fiscal year to R43bn — almost as high as last year’s dramatic undershoot.
Corporate income tax collections fell another R6.4bn short of October’s targets in a very weak economy, but the rest was because the VAT refunds Sars owed were high- er than originally estimated.
In total, Sars has now paid out R28bn more in VAT refunds than last February’s estimates, officials say. Its credit book — which had spiked to R42bn because it owed so much in refunds — has now been cut to under R25bn.
The revenue shortfall contributed to a fiscal deficit which at 4.2% was worse than the 4% in the medium-term budget in October, when the Treasury had to slash economic growth forecasts and up the deficit and debt estimates dramatically. Next year’s deficit will also be wider, off this year’s lower revenue base.
The Moyane-inflicted damage to Sars’s integrity and effectiveness, and a weak economy, have combined to make the sharp tax hikes of the past four years self-defeating. South African taxpayers have seen hikes in personal income tax rates as well as in the VAT and fuel tax rates — yet this week’s Budget Review points out that though tax measures totalling almost R100bn have been introduced since 2015/16 to raise additional revenue, the tax-to-GDP ratio has fallen over the period.
This time finance minister Tito Mboweni has relied on fiscal drag — not giving taxpayers relief for inflation — to raise an additional R15bn or so. Looking ahead, the government will depend on big improvements at Sars, rather than new taxes, to boost revenues.
Next year the budget has pencilled in about 9% revenue growth, up from this year’s 7% — which was well below the almost 11% originally budgeted a year ago. That may look optimistic, but as the turnaround at Sars gains pace, the big revenue undershoots of recent years will ideally become a thing of the past.
Under acting commissioner Mark Kingon the tax authority has not waited to start on urgent reforms to restore its integrity