Sars failure to collect R50bn in tax forced increase in VAT
THE failure of the South African Revenue Service (Sars) under suspended commissioner Tom Moyane to collect more than R50 billion in tax revenue forced the government to increase value-added tax.
This was the submission of National Treasury officials Dondo Mogajane, director-general, and his deputy Ismail Momoniat, when they appeared before the Nugent Commission tasked to probe tax administration and governance in Sars after the appointment of Moyane in September 2014.
The commission, chaired by retired Judge Robert Nugent, heard that a year after Moyane’s appointment, all institutions which were responsible for the collection of tax revenue, customs and excise duties were summarily dismantled.
It allegedly also led to the mass exodus of experienced people in Sars, while others were shifted against their will to other divisions in Sars.
Momoniat and Mogajane were adamant that it was not a coincidence that, during the same period, Sars failed to collect more than R50bn in tax revenue, which prompted the government to increase VAT from 14% to 15%.
According to them, the sudden announcement of free higher education also had an influence on the decision to increase VAT. Momoniat said they were hoping to collect between R23bn and R25bn due to the VAT increase annually.
“After 1994, we were delivering good news to the taxpayers, including the reduction of personal income tax.
“Things changed after 2014. We were not able to collect R50bn in tax revenue collection; as a result we were forced to raise VAT. This was also prompted by the introduction of free higher education. We went to the cabinet and they approved the increase of VAT,” Momoniat said.
He said the rating agencies at the time were also concerned that the ability of the government to pay its debt was going “to diminish”.
National Treasury officials were adamant that the country’s tax collection woes had nothing do with the state of the economy, unlike in 2009 when the country experienced a global financial crisis.
They asked the commission to curtail the powers of the Sars commissioner.
Detailing their reasons, the National Treasury bosses told the commission their call was prompted by the breakdown of relations between suspended Moyane and former finance minister Pravin Gordhan.
In evidence before the commission, Moyane allegedly refused to co-operate with Gordhan on critical matters on budgeting and revenue collection.
Mogajane said Moyane’s predecessors were directly reporting to the finance minister but things changed once he took office.
He asked the commission to consider the appointment of a board for Sars for any new commissioner to account to before making any vital decision.
“Revenue authorities should have sufficient managerial autonomy, but need to balance it with accountability, often through external, independent oversight bodies,” the National Treasury said.
The commission heard that Moyane had since 2016 snubbed important meetings aimed at discussing annual budgets and tax revenue collection during Gordhan’s tenure.
Mogajane told the commission the poor relations between Gordhan and Moyane began in 2016 and lasted until 2018, when Gordhan was no longer in office, saying it affected their budget preparations, including tax proposals.
According to Mogajane, the poor relations between Gordhan and Moyane affected their normal operations at the National Treasury.
“In normal times, many meetings on tax proposals take place from December to February for preparing the Budget for the next financial year,” he said. “In recent years, preparations for the 2016, 2017 and 2018 Budgets involved less participation than normal, or none.”