SA Revenue Service (Sars) commissioner Edward Kieswetter has weighed in on the drivers of the huge tax overrun reported in last week’s budget, saying it has been credited too much to the commodities boom and not enough to Sars’s own efforts.
Of the R1.25-trillion in taxes collected in the first 10 months of the fiscal year, R144bn “would not have been there if we were twiddling our thumbs”, Kieswetter said last week. This followed a budget that showed tax collections for the current fiscal year are now projected to run R182bn ahead of last February’s budget estimates, with total government revenue including mining royalties overshooting estimates by almost R200bn.
Finance minister Enoch Godongwana said in his budget speech that the “positive surprise” had come mainly from the mining sector due to higher commodity prices. But he warned that the far stronger than expected revenue performance did not reflect an improvement in the capacity of SA’s economy: “As such, we cannot plan permanent expenditure on the basis of short-term increases in commodity prices,” Godongwana said.
The budget came in a week in which mining companies reported steep rises in profits and tax payments, with the Anglo American group of companies alone paying $4bn (more than R60bn) of tax in SA for the year to end-December, up from $1.9bn in the previous year.
However, Kieswetter said about a third of the tax overrun was attributable to the economy, and the other two thirds to Sars’s efforts. Nor was the R69bn-R79bn contribution from the economy a result of the commodity cycle alone, with recovery across the spectrum in mining, manufacturing, wholesale, retail, communications and logistics. While the economy expanded 12% in nominal terms, tax revenue was up by about 28%, he said.
The commissioner, who has been working to turn Sars around and reverse the legacy of state capture since he took the helm in May 2019, said the compliance index — which reflects filing and paying by registered taxpayers — has risen from 62% to 64.5% during the year. In the first 10 months of the current fiscal year to end-January the tax authority collected R47bn of tax debt, of the estimated R200bn tax debt that was outstanding at the time he took over. To secure that, Sars’s debt collectors worked through 2.4-million cases, issuing final letters of demand and obtaining civil judgments.
Revenue had also come from 113 successful prosecutions, Kieswetter said, with Sars handing an additional 220 case files to the National Prosecuting Authority. It had also gone after syndicated crime, collecting more than R6bn in additional revenue, as well as after customs crime. Sars has raised an additional R18bn in assessments just from the underground cigarette and tobacco trade, which Kieswetter says has embedded itself in SA. He says there is much more additional revenue still to be gained as Sars, which turns 25 years old this year, works to address the large compliance gap and tackle the criminal and illicit economies.
Economists have cautioned that the government should not make the same mistake it did in the last commodities boom in the mid 2000s, when it mistook revenue overruns from a cyclical upturn in commodities, as well as a turnaround at Sars, for a more permanent expansion of the tax base. It used this to justify permanent increases in spending, which became unsustainable when revenue collapsed during the 2007/2008 global financial crisis.
Wednesday’s Budget Review showed that of the R182bn in extra tax collections for the fiscal year to end-March, R105bn was projected to come from corporate income tax, which is up 57.5%, with excise and customs duties also showing unexpectedly steep increases. Mining royalties are projected to almost double to R12bn.
The review said the rebuilding of Sars was evident in improved revenue collection and compliance trends, with 490 new staff recruited over the past year and R430m invested in refreshing and modernising Sars’s ICT infrastructure. Kieswetter says the tax authority is focused on big data and artificial intelligence to identify areas of risk and bring in additional revenue.
The review, which came before the prices of commodities jumped again in response to Russia’s invasion of Ukraine, said commodity-driven revenues have exceeded expectations despite reversals in recent months, and were expected to add revenue over the next three years.
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