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SARS hoping for higher growth to boost collections

Apr 08 2018 06:00
Justin Brown

The SA Revenue Service (SARS) was hoping that the local economy would reach growth of 2% or more “fairly quickly”, Randall Carolissen, SARS group executive for research, said this week during an interview.

This would help with SARS’ revenue collection.

“The green shoots are there for us. That will depend on the way that the politics plays itself out and the way we get reintegrated into the world economy. We are growing behind the world economy ... For the past 10 years, we have decoupled,” Carolissen said.

The world is expected to grow by between 3.5% and 4% in 2018 while most economists are forecasting 2018 growth of between 1% and 2%.

“You can only go so far through policy interventions [such as tax hikes] ... Once we close all these inefficiencies, then the only thing that will make a big difference is sustainable economic growth. Then we will start to get jobs ... people become more confident. Companies continue to invest more.”

Carolissen said that to achieve the 2019 tax goal of R1.345trn, Sars would “need to get its act together”, increase efficiencies and improve tax compliance.

He said that the coming tax year would be supported by “a whole host of policy proposals”.

“Chief among these would be the VAT rate increase [from 14% to 15% that will garner almost R23bn].”

“SARS needs to restore its credibility in the eyes of the general public. SARS needs to clean up all these issues that are hanging over us like a cloud. The issues of the [Jonas] Makwakwa matter, the suspension of the SARS commissioner [Tom Moyane], KPMG report and a whole host of factors. We need to put these with the correct authorities to allow us to get on with our lives – to being good tax collectors.

“We want to remain humble – we have lots to fix ... We are acutely aware of the credibility issues with SARS.”

Nene: Tax morality, SARS credibility key

Finance Minister Nhlanhla Nene said this week at the announcement of the tax revenue collections figures for the 2018 tax year, that improved business confidence was yet to translate into higher employment numbers and significant growth in the wage bill.

“For any tax authority, tax compliance is one of the key determinants of its revenue performance. SARS has seen a deterioration in compliance as indicated by the overall growth in outstanding returns across all taxes,” Nene said.

“More concerning though is the increasing tendency of business to withhold taxes such as VAT and PAYE collected on behalf of SARS.”

Acting SARS commissioner Mark Kingon said the lack of compliance related to VAT and PAYE were a great concern for SARS.

He said that right now penalties only applied to personal income tax but fines could be applied in future to both VAT and PAYE.

SARS was in talks with the justice cluster of government regarding improved tax-related enforcement. “Not paying PAYE is a criminal offence,” Kingon said.

Nene said that President Cyril Ramaphosa was finalising the terms of the SARS inquiry and these terms of reference were set to be announced in the next week or two.

Ramaphosa’s spokesperson, Khusela Diko, said that the SARS inquiry terms of reference were being worked on.

SARS tax target for 2019 year is 'feasible'

SARS’ 2019 tax target of R1.345trn is feasible due to R36bn in extra tax measures put through during the 2018 budget speech, as well as the anticipated improvement in local economic growth.

This is the view of Kyle Mandy, a partner and head of national tax technical at PwC South Africa.

However, he warned that “the real question is economic growth”.

Earlier this week, Nene announced that SARS had collected R1.216trn, R740m below the 2018 budget speech target.

However, when compared to the 2017 budget speech, when the goal was R1.265trn, SARS missed that target by R48bn and this is why there were such big tax hikes in February.

The figure of R1.345trn is a significant 10.5% increase, equal to R128bn, on that collected in the 2018 tax year.

However, if you ignore the R36bn to be raised from new taxes, then the taxes that were applicable in the 2018 tax year need to raise R1.308trn, which is an increase of 7.5%.

The South African Reserve Bank is forecasting headline inflation for the year ending March 2019 of 5.1%.

The National Treasury has a 2018 calendar year GDP growth forecast of 1.5%, compared with the 1.3% in growth in 2017.

Assuming that growth for the year ending March 2019, which coincides with the SARS year, is also 1.5% then the local economy in that year could, in nominal terms, real economic growth plus inflation, grow by 6.6%.

PwC’s Mandy said that another factor that could see SARS achieve the tax collection goal for the 2019 tax year was improved tax buoyancy, which is an indicator to measure efficiency and responsiveness of tax collection when compared with growth in the GDP.

A value above one for tax buoyancy means that revenues are growing faster than the economy; below one means they are growing below the rate of GDP growth. Tax buoyancy has fallen below 1, to 0.94.

Mandy said that the local long-term average for tax buoyancy was 1.1.

If tax buoyancy returns to 1.1, then the nominal increase in potential tax revenue (possible nominal growth of 6.6% times 1.1 for tax buoyancy), could be 7.26% – very close to the 7.5% hike in tax revenue required before the R36bn in extra tax measures come through.

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sarb  |  sars  |  nhlanhla nene  |  mark kingon  |  tax  |  revenue
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