SARS to close the R50.8bn tax shortfall

ONE COMMON THEME that the media has been persistently and relentlessly pushing is to create an impression that the SA ­Revenue Service (SARS) is badly ­managed and falling apart under the tenure of the current leadership.

What makes this media onslaught incredible is that it is contrary to the facts and figures showing that SARS is not only managing to be resilient under very difficult economic and political circumstances, but that it is also renowned as one of the best revenue services in the world.

Let me hasten to say that we appreciate and support the role of the ­media as a watchdog to protect ­public interest through exposure of wrongdoing and inefficiencies, in particular within state institutions such as ours.

Such critical responsibility by the media must always be tested against high levels of integrity, honesty and truthfulness on the part of the ­media, which does not seem to be the case when it comes to SARS.

It is for this reason that we want to avail information to lay bare the truth on the much punted issue of the R50.8bn downward ­adjustment.

As the facts will reveal, it is ­completely incorrect to blame SARS for this adjustment.

Firstly, the revenue target is not set by SARS alone, but by the Revenue Analysis Working Group, which is made up of the National Treasury, the SA Reserve Bank and SARS.

They jointly ­recommend a ­revenue estimate to the minister of ­finance based on macro­economic imperatives.

The basic principle is that, if the economy is doing well, the target will be increased – as seen during economic booms.

But when the economy is under strain, the target is adjusted downwards.

Therefore, the revenue shortfall of R50.8bn is largely because of the state of the economy.

The global and local economies are still struggling as a result of the 2008/09 global economic crisis.

Despite the fact that the economies of the rest of the world have ­recovered, with GDP growing at an average of 3.6%, South Africa is ­lagging well behind, with the latest outlook for the 2017/18 financial year trailing at a GDP growth rate of 0.9%.

The technical recession that South Africa experienced in the first half of this year and the relative dim outlook for the remainder of the year necessitated a downward revision in the ­economic outlook.

There is a relationship between growth in revenue collection and growth in GDP.

So the downward revision of R50.8bn of the revenue target to R1.214 trillion must be viewed against the downward revision of the GDP growth forecast from 1.3% to 0.9%.

In addition, ongoing poor business and consumer confidence continue to weigh against a sustained economic recovery in South Africa.

Business confidence remains poor, which means companies hold back on expanding employment and investment.

Lower company profits, as a result of strained economic growth, lead to lower corporate income and, in turn, to lower corporate income tax ­collection.

The much talked about R600bn that corporates are not investing back into the economy continues to put a strain on our economy and on SARS’ ability to collect more revenue.

High unemployment levels of 27%, coupled with low wage increases and low bonuses continue to put a strain on personal income tax collection.

There has actually been a retraction in the growth in personal ­income tax collection from more than 12% in previous years to about 8% this year.

While low business confidence constrains growth in personal ­income tax collection, it also ­negatively affects value-added tax and ­future corporate income tax ­collection.

SARS is also starting to see much lower dividend taxes than in the past, which suggests that companies are holding on to their cash reserves ­because of higher dividend tax rates.

Low consumer confidence means that taxpayers cut back on consumption spending and prefer to settle household debt when there is a risk of losing their jobs. The lower ­consumption spending constrains domestic and import taxes as households focus on the basics.

Year to date imports are contracting in real terms. They are estimated to grow at only 5.3% in 2017/18, ­according to the medium term budget policy statement.

These factual ­issues, among ­others, are what ­inform the ­Revenue Analysis Working Group’s discussions and ­decisions.

As a consequence, the medium term budget policy statement target of R1.214trn, when achieved, would still require growth in revenue collection of 6% in a flat GDP growth environment.

Thus, tax revenue must still grow despite the poor economy.

We need to remind ourselves that, for the R1.214trn to be achieved, SARS must extract about 26% tax to GDP.

That is a ratio that SARS has consistently extracted over the past few years thanks to the commitment and dedication of SARS’ 14 000 employees.

The 26% tax to GDP extraction rate is one of the best globally and places SARS among the top revenue authorities in the world.

But SARS is not perfect and can ­always do better. As a result, there are a number of programmes and ­initiatives that we are implementing to claw back as much as possible of the R50.8bn.

The collection of all revenue due to the state and the protection of all ports of entry while facilitating trade is a mandate that SARS takes very ­seriously.

I want to assure South Africans that SARS understands and appreciates our critical mandate, and we are committed to working tirelessly to make sure we collect all revenue due as we take this country forward.

* Tom Moyane is the Commissioner of SARS.