Decline in tax compliance
While most taxpayers were responsible, government had noted a slippage in tax compliance, Finance Minister Malusi Gigaba said in his medium-term budget policy statement (MTBPS) yesterday.
“Sars [SA Revenue Service] has enforcement powers, which are in the main punitive, and this will be applied to taxpayers who willfully and cynically avoid paying their taxes. However, Sars also remains sensitive to taxpayers, who are facing challenges,” Gigaba said.
Tax revenue was projected to fall short of the 2017 budget estimate by R50.8 billion in the current year – the largest under-collection since the recession in 2009. The sharp deterioration in revenue collection and downward revisions to economic growth projections have significantly eroded government’s fiscal position.
While weakness in tax revenue reflected various economic factors, Treasury warned that policy and administrative factors might also contribute to the shortfall.
“Behavioural responses to tax increases may be larger than anticipated and revenue could perform below expectations even if taxes are hiked.”
Gigaba said it was important to continually strengthen tax morality and deal with any underlying causes that might undermine it, including public concern about government corruption, poor governance or those abusing the fairness of the tax system.
In September, tax ombud Judge Bernard Ngoepe found that Sars’ system allowed it to unduly delay the payment of verified refunds to taxpayers in certain cases. Gigaba said he was engaging the commissioner of the South African Revenue Service Tom Moyane, on recommendations made by the ombud and taking steps to help improve taxpayer confidence.
“Government is aware of the concerns raised by taxpayers regarding delays in refunds, and with regard to the capacity of Sars to deal with transfer pricing, increasing VAT fraud and aggressive tax structuring.”
Lower tax revenue outcomes in the 2016-17 fiscal year explained part of the shortfall. However, revenue growth had remained weak even though the economy emerged from a recession in the second quarter, Treasury said.