Tax dodgers are robbing SA of billions of rand annually.
SA Revenue Service (Sars) commissioner Edward Kieswetter told MPs that an estimated amount of R800bn of tax remained uncollected annually from individuals and companies, according to an end-March tax account reconciliation.
The figure includes debt owed to Sars, outstanding returns and actual uncollected inventory. Debt after preliminary impairment assessments of R201.8bn at end-March amounted to R257.6bn.
It is money due to the fiscus which would help in addressing its financial constraints and assist in the delivery of essential services.
PwC tax policy leader Kyle Mandy, who earlier this year estimated the tax gap to be at least R300bn, described Sars’ estimate as “horrendous” and “shocking” and far exceeded any of the estimates that others had come up with.
Mandy questioned whether Sars had undertaken a comprehensive tax gap analysis to arrive at its estimate. The UK did an analysis every year and he said the latest estimated tax gap for the UK was only 4.8%, for Australia 7% and the US 13%.
Kieswetter said the net tax gap derived from Sars’ own data and studies represented an estimated under-recovery of 32% of the estimated tax liability for the country of R2.54-trillion of which R1.48-trillion was paid voluntarily and timeously.
If the R261bn that Sars collected from its compliance programmes was added to the R800bn, the gross tax gap was R1.061-trillion, Kieswetter said in a briefing to parliament’s finance committee on the tax authority’s 2023/24 annual report.
Funding constraints
He highlighted the benefits for tax collection of Sars getting more funding which could be used to reduce the tax gap and generate more tax revenue for the fiscus. He said the Sars budget was “woefully inadequate” and the funding constraints meant that the tax gap continued to grow, leaving significant tax revenues unrecovered.
“We built a business case to the minister of finance last year to say that if you give us another R1bn we can give between R30bn and R60bn in extra revenue. The money only arrived in November so that we could only deploy it for the last quarter of the year and spent R226m of the R1bn — the rest will be spent this year.
“But just the R226m yielded an additional R14.5bn of revenue, some of it from additional assessments we have raised and some of it from preventing impermissible or fraudulent refunds. So you will not find a better financial return on this investment. Our aim is to achieve our 60% yield on the R1bn,” Kieswetter said.
Sars received the in-year allocation of R1bn in the October 2023 medium-term budget policy statement to improve its revenue-raising capabilities.
An indication of Sars underfunding was the sharp decline in its cost-to-revenue ratio from 1.10 in 2011/12 to 0.7% in 2023/24. Between 2014/15 and 2023/24 Sars’ grant allocation increased by 3.5% to reach R12.59bn in 2023/24 against a consumer price index growth of 5% and tax revenue growth of 6.7%. Over this period the Sars headcount contracted 1.6% to 12,805 employees and capital expenditure declined 5.6%.
Kieswetter said Sars needed R1.5bn just to be able to employ the people needed in information technology, data analytics, audit risk and dispute resolution, investigations, the Sars graduate development programme and to rebuild its capacity.
The funding shortfall over the three-year medium-term expenditure framework to restore its baseline was R17bn-R20bn, plus an additional R1bn was needed to drive its short-term revenue recovery programme and R1bn per year over the three years for its modernisation initiatives, he said.
The commissioner would not be drawn on the tax revenue performance so far this year, saying finance minister Enoch Godongwana would provide details in next week’s medium-term budget policy statement.
Two-pot withdrawals
The tax revenue outcome will reflect R6.1bn derived so far from the R25.4bn approved for 1.399-million two-pot withdrawals, R1bn more than the R5bn the Treasury estimated in the February budget for this fiscal year. Outstanding tax to be collected from the two-pot withdrawals of noncompliant taxpayers amounts to R670m.
Kieswetter did provide an overview of tax collection in the first half of the fiscal year to end-August saying it was 2.4%, or R20.5bn, lower than the target but 5.2% (R41bn) higher year on year. Key drivers of the shortfall against the target were import VAT, PAYE and the fuel levy which were partly offset by gains in corporate income provisional tax and domestic VAT.
Sars’ compliance programme had contributed R106bn or year-on-year growth of 3.9% (R4bn). Year-on-year growth was recorded for the finance, community and electricity sectors and year-on-year contraction for mining.
Kieswetter said import VAT remained under strain as merchandise imports recorded a year-on-year decline of 5.1% between January and September while the February budget estimated trade to grow by 1.9% year on year.
PAYE collections remained under pressure due to lower growth from employers in the finance sector, growing 8.2% in the first half against an expected annual growth of 13.8%.
The net fuel levy registered a decline due to lower fuel declarations of 10.9% year on year.
On the basis of August data from Sars, Mandy expected the medium-term budget to announce a tax revenue shortfall of R25bn-R35bn, including the two-pot windfall, largely due to import VAT and VAT refunds.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.