Financial Mail - Investors Monthly
ECONOMY WATCH
A fter Mark Kingon’s baptism of fire appointment as acting commissioner of the SA Revenue Service (Sars) a year ago, the proof of his success or failure at the job will become clearer when he announces progress on the tax agency’s revenue collection targets in April.
The ongoing revamp of SA’s battered receiver of revenue will continue to be in the spotlight, especially as the appointment of a new commissioner nears finalisation. There will be high expectations for this person to restore Sars to its former world-class glory after it was crippled by mismanagement and poor governance under former commissioner Tom Moyane.
Interviews for the commissioner vacancy entered the final stages in March.
According to tax industry insiders, top contenders are believed to be former auditorgeneral Terence Nombembe, former Sars chief enforcement officer Gene Ravele, former Sars deputy commissioner and Alexander Forbes CEO Edward Kieswetter and Kingon.
Kingon’s term, which expired on March 13, was extended by finance minister Tito Mboweni until June 11 or the appointment of a new commissioner, whichever came first.
Tax industry practitioners expect that Kingon will be responsible for presenting preliminary tax numbers this month.
The economy achieved stunted growth of 0.8% for 2018. Corporate profitability fell along with business confidence and expenditure, while unemployment remained high. Wages were also lower, espe- cially in the public sector.
The question among tax practitioners now is whether last-minute revenue-activation strategies at Sars would have been effective.
Keith Engel, CEO of the SA Institute of Tax Professionals, says: “My assumption will be that they will come close — exceed [the target] slightly or fall below slightly. It’s just a question of whether their [February] revenue-activation strategy was sufficient. The economy is pretty flat.
“I’m sure when they made the number they understood what their situation was … I don’t think Mark [Kingon] is going to want to get a number that’s way off, that will be embarrassing to him.”
In April 2018 Kingon announced a collection target of R1.345-trillion for the 2018/2019 financial year which ended in March.
Kyle Mandy, head of national tax technical at PwC, says that based on the data available, which was only for January, Sars may achieve a revised target of R1.302-trillion.
A challenge is the slowdown in revenue collection between December 2018 and January 2019.
“All the risks are to the downside, I’m afraid. It really does depend on how revenue collection performed in February and March,” he says.
The National Treasury’s estimates for the revenue shortfall are greater than the R27.4bn announcement in the 2018 medium-term budget policy statement. In the 2019 budget the Treasury forecast a shortfall of R42.8bn. The shortfall was R48bn in the previous year.
There has been a drop in tax compliance, but the pool of taxpayers also remains small and overburdened.
In the budget, the Treasury said: “Despite several years of tax increases, the tax-to-GDP ratio is declining.”
The Treasury’s tax proposals for 2019 are estimated to raise revenue by R15bn and include no inflationary adjustments to tax brackets, which will result in some taxpayers falling into a higher tax bracket and being taxed more.
The general fuel levy will be hiked by 15c a litre for petrol
The Road Accident Fund levy will rise by 5c/l to R1.98. The carbon tax on fuel of 9c/l comes into effect in June
and diesel on April 3.
The Road Accident Fund levy will rise by 5c per litre to R1.98. The carbon tax on fuel of 9c per litre comes into effect in June. This tax is expected to raise R1.8bn for the fiscus in 2019/2020.
The sugar tax applies to beverages with more than 4g of sugar per 100ml. It will rise from 2.1c per gram to 2.21c a gram from April 1 to avoid an erosion in the value of tax due to inflation, the Treasury said.
Zero-rating for VAT of white bread flour, cake flour and sanitary pads, among other items, will also come into this month. This is expected to cost the fiscus R1.1bn in forfeited VAT.
Sars is hoping to score big in tax collection through the revitalised large business centre, a one-stop service for companies and high net worth individuals. The unit was weakened under Moyane, creating an environment for illicit economy activities to thrive.
Narcizio Makwakwa, acting head of the large business centre, tells IM that an official opening ceremony for the centre will be held this month. A reconstituted illicit economy investigating unit within the centre is making headway in cases involving collusion in the gold sector and fraudulent claims for input tax. In the cigarette industry, producers have been caught running three lines for cigarette production but declaring excise duty on only one line.
Still, the large business centre will be unable to meet the R15bn speedily despite ramping collection methods.
In other cases, businesses are struggling to pay tax because they are paid late by the government and clients in the private sector.
“People were talking about a tax revolt but honestly I haven’t seen it. The cases I’ve seen are people coming forward and saying we just have a problem with the cash flow,” Makwakwa says.
Other important events to watch for will be the a conference organised by the New Development Bank — the Brics bank — in Cape Town on April 1 and 2. The conference is on financing sustainable development.
As SA remains jittery over its sovereign credit rating status, the S&P Global Ratings annual credit conference will be another highlight on the calendar.
The conference is themed “Navigating SA’s credit landscape in changing times”. The Joburg leg starts on April 9 and a duplicate conference will be held in Cape Town on April 11.
Ravi Bhatia, a director and lead analyst at S&P, tells IM that Eskom’s significant financial challenges still pose a contingent liability to the government.
The state has intervened and will provide a R69bn life- line to pay the power utility’s cost of servicing debt over the next decade.
This has raised the government’s debt ceiling slightly, though ratings agencies may be more forgiving given Eskom’s importance in keeping the economy running.
Bhatia also highlights the government’s steadily increasing debt numbers as a percentage of GDP over the past few years. “From a sovereign point of view that is a concern. And there is no clear upside on the growth side.”
Mining production and sales and manufacturing production and sales for February will be keenly watched for on April 11. The sector remains crucial to the economy. Production took another knock in January due to strikes, slower global growth and load-shedding.
Peter Leon, partner and cochair at law firm Herbert Smith Freehills, says mining charter 3 and implementation guidelines which came into effect this month provide certainty three years after publication of the first draft. But its implementation will come at a cost for the industry.
Leon says: “With the exception of procedures relating to the beneficiation equity equivalent, the guidelines likewise do not address any of the ambiguities created by the charter … The publication of the guidelines and amendment appears another missed opportunity for the minister to have addressed the remaining uncertainties around the charter.”
He adds: “If the mining sector is to truly become the ‘sunrise industry’ that the government wishes it to be, it will have to become more proficient in how it regulates the industry.”
“Mining charter 3 and implementation guidelines which came into effect this month provide certainty three years after publication of the first draft