Sars set to squeeze taxpayers for more
Debt-servicing costs devour about 20% of the main budget revenue
Sars will be required to collect outstanding tax debts faster and more efficiently, and increase audits of taxpayers
Finance minister Enoch Godongwana hit South Africans with more bad news in his medium-term budget policy statement (MTBPS) at the beginning of the month. The minister indicated how long-standing structural constraints continue to limit economic performance.
In the past few years, freight-rail capacity and throughput have declined, constraining growth and exports, while large-scale and prolonged power cuts have plagued mines, factories, farms and households. Despite a recent improvement, private sector investment growth has declined over the past decade. This suggests a weaker outlook for domestic economic growth, lower than projected tax revenue, and the inability of the economy to generate sufficient revenue to service government debt over the long term. Simply put, a few state-owned enterprises (SOEs) such as Eskom and Transnet have hampered the growth of some of the main sectors of our economy such as mining, agriculture and manufacturing.
Unlike in the past few years when higher commodity prices helped increase tax revenues from mining companies, this year commodity prices have fallen faster than expected, resulting in lower-than-expected tax revenues with VAT refund claims increasing in the same period.
As expected, lower tax revenue extends to manufacturing and agricultural sectors. Predictably, the ever-increasing petrol and diesel prices, and the depreciating rand, worsened the situation. The budget review showed that, this year, tax revenue collection is projected to be R56.8bn below 2023 budget estimates and has been adjusted lower for the medium term.
All of this means the government must borrow more to balance its budget, and this debt accumulation has led to a rapid increase in debt-servicing costs, which now consume about 20% of the main budget revenue. For every R5 collected from taxpayers, R1 goes towards paying South Africa’s increasing debt of about R5.2trillion.
After listening to the bad news from the MTBPS, we are justified in worrying about how this will affect our pockets. However, it seems we do not need to worry too much because the government has made some proposals on how to remedy the revenue crunch. These include stabilising public finances, reforming the economy to generate higher growth, further improvements in tax administration and broadening the tax base.
According to the finance minister, Sars will continue focusing on enforcing compliance in areas such as debt collection, fraud prevention, curbing illicit trade, and voluntary disclosure. It seems Sars is going to squeeze taxpayers even more. It will be required to collect outstanding tax debts faster and more efficiently, and increase audits of taxpayers, which should result in more and larger assessments.
For taxpayers, this may require more investment in resources, including time to comply with increased tax obligations, audit requests, and in disputing assessments raised by Sars. For some taxpayers, the extra compliance may not be affordable as those resources may be better used for sustaining and growing their businesses.
Despite the increased demands on Sars to collect more revenue, cost containment measures such as the control measures implemented by the government for creating and filling vacant posts are also applicable to Sars.
Hopefully, these measures will not hurt the revenue service’s efforts to train, recruit and retain critical staff and modernise its tax systems to enable it to improve on its assessments and increase its revenue collection as expected by the government.
We hope that honest and compliant taxpayers will continue to be engaged by Sars in the spirit of resolving tax disputes in a co-operative manner and per the provisions of the relevant tax laws.
We hope Sars will continue to allow taxpayers to settle their tax liabilities in ways that do not irreparably harm their businesses but are able to secure jobs and grow our economy. Above all, South Africans hope that, this time around, the government will finally implement its proposals properly and urgently.