Weak Sars offers hand to lamed firms

● As many as 75,000 small and mediumsize companies and 4-million workers could be helped by the package of tax measures the Treasury announced last Sunday to cushion the impact of the crisis over the next four months.

The package, which will cost an estimated R15bn in lost government revenue, is very modest compared to the billions of dollars of “helicopter money” that many governments are pumping into their economies.

It includes a R500-a-month tax subsidy for workers earning less than R6,500 a month, and PAYE and provisional tax payment holidays for small firms with annual turnovers of less than R50m.

“The advantage is these measures are super-quick and no approvals are needed,” said Treasury chief director for tax policy Chris Axelson.

“We want to tide people over during this period; the whole point is to keep that productive capacity in the economy.”

Though the measures will give employers an incentive to sustain jobs and will put cash into companies over the next four months, they will not go far if the lockdown is prolonged and the economy sustains deep damage.

SA’s ultra-cautious approach reflects the strain the government’s coffers were already under before the coronavirus pandemic and the lockdown.

That strain was evident again this week when the South African Revenue Service (Sars) published its usual April 1 fiscal yearend numbers, which showed that the shortfall in government revenue for the 2019/2020 fiscal year has turned out even larger than projected just five weeks ago.

In his February budget, finance minister Tito Mboweni projected a R63.3bn shortfall; this week’s Sars numbers show the outcome was R66.3bn, which suggests the fiscal deficit will be higher than the projected 6.8% of GDP.

And with economists now projecting a deep recession, it’s clear that there is no way that Sars can meet even its modest target of 4.9% revenue growth for the current, 2020/2021 fiscal year. The only question is how huge the shortfall will prove to be.

Sars commissioner Edward Kieswetter said this week that the Moody’s downgrade and Covid-19 will have a profound impact on the economy — companies already struggling to grow will struggle to retain jobs and to even stay open — and revenue could decline, placing strain on the country’s fiscal framework.

But he made it clear that the tax authority will persist with its efforts to improve compliance and ensure that taxpayers pay what they owe.

Initial estimates suggest that the tax gap — the gap between what ought to be paid and is actually being paid — is more than R100bn.

That reflects general noncompliance as well as “aggressive tax planning bordering on evasion” and outright criminal activities such as VAT fraud and not paying over employees’ PAYE to Sars, Kieswetter said. Sars is working with the Davis tax committee to see how to close the gap.

The Sars year-end numbers show corporate income tax was already hard hit by a slowing economy in March, coming in R4.6bn lower than February’s estimate, which had already been revised sharply down on much weaker than expected economic growth.

In effect an interest-free loan

Corporate income tax collections for the year are essentially flat at 0.1% growth, with most sectors showing declines and only a few — notably mining and catering and accommodation — recording healthy increases.

The new measures announced on Sunday will allow companies with turnovers of up to

R50m to defer paying up to 80% of their PAYE to Sars over six months, giving them in effect an interest-free loan, said the Treasury’s Axelson.

They will also be able to defer payment of part of their provisional taxes.

“The aim was to get cash into the hands of companies as quickly as possible,” he said.

The R500-a-month job subsidy is an extension — to all employees earning less than R6,500 — of the existing youth employment incentive, which currently reaches about 1-million to 1.5-million young people in their first jobs and costs the government about R4bn a year.

The new package — which will last from April 1 to July 31 — will cost the government an estimated R10bn, said Axelson. Employers will get the advantage, via the PAYE system, from the first payroll on May 7.

Kieswetter said Sars is working to ensure its systems will be ready for the new measures.

The tax gap reflects aggressive tax planning bordering on evasion

… and outright criminal activities

Edward Kieswetter

Sars commissioner