As growth flags, the need for Sars efficiency rises

It is one of the best options government has to close the fiscal gap

How does a tax authority go from falling R27bn short of its tax collection target in October to R57bn short six months later?

The answer says as much about the weak state of SA’s economy as it does about the weaknesses of the South African Revenue Service (Sars). It suggests, too, that rebuilding the tax authority will not be easy or quick, as commissioner-designate Edward Kieswetter recognises when he talks about “mountains to climb”.

Every year, Sars goes public with the final tax take shortly after the fiscal year ends on March 31. Usually, the results are statistically in line with the updated estimates in February’s budget, just six weeks before. This time, the shortfall was more than R14bn bigger, giving a total for the year that was almost as high as the record R60bn hole in the depths of the financial crisis. Revenue growth for the year, at 5.8%, was hardly more than half the original 10.6% target.

October’s medium-term budget already saw the start of the clean-up of Sars after its effectiveness and credibility were savaged by former commissioner Tom Moyane. Under acting commissioner Mark Kingon, Sars has reinstated some of the units

Moyane dismantled and has been paying out billions of rands of refunds that had been held back, or underestimated, to make it seem Moyane was meeting targets.

The refunds, totalling R42.5bn, have put money back into the pockets of taxpayers, and therefore into the economy, even if they have driven the shortfall.

Once it started refunding in October, Sars had to keep upping estimates of what was owed, as it cut its debt to VAT vendors and caught up on corporate income tax audits.

But it is unexpectedly low corporate income tax collections that were the other big driver of the revenue shortfall, and particularly of the jump between February and end-March.

Provisional tax payments from large corporate taxpayers came in R11.4bn below target, and were down 1% year on year. The tax take from small and medium enterprises also lagged, and total corporate income tax was down 2.5% for the year.

That’s a clear sign of economic weakness. Citi economist Gina Schoeman has pointed out that corporate profitability has declined sharply, which is one reason investment (and tax) has declined over the past three years.

But the tax trend also reflects Sars’s weakness. Without the skills and institutional memory it used to have, it’s less able to detect fancy cross-border tax structures and “base erosion and profit shifting” by companies (or high net worth individuals), and they know that.

Can Sars deliver on this year’s target, once again an ambitious 10.5%, in an environment in which economists are cutting growth forecasts to about 1%?

Turning around Sars is a challenge. But in the absence of economic growth in coming years, it is also one of the best options the government has to close the fiscal gap. ✼Joffe is a communications consultant and freelance journalist