Investment in improving SA Revenue Service (Sars) administration rather than increasing tax rates is a better option to improve the collection of tax revenue, Sars commissioner Edward Kieswetter says.
The commissioner, speaking at a “Perspectives and Positioning for 2025” webinar hosted by Allan Gray two weeks ago, said the country must not be tempted into thinking that increasing tax rates automatically leads to bigger tax revenues. He said the experience of the 2017 VAT hikes bears testimony to this.
Kieswetter believes tax increases have reached an “inflection point”, a situation where tax increases are likely to have negative economic consequences.
“We must be very circumspect before increasing taxes,” he said.
“The last big hike on taxes was the VAT increase from 14% to 15% and we know from experience it did not radically give more revenue because we have reached a point of inflection.
“Former ministers of finance had actually started trending down, for example, corporate income tax rates with the intention of doing more to broaden the base, improve compliance and reduce opportunities for companies to arbitrage their rates,” he said.
“This does not mean a minister of finance will never look at increasing a tax rate — it is one of the legitimate instruments at their disposal. But I think what is clear is that directionally the biggest benefit for SA is a better tax administrator.”
He pointed out that tax estimated at R800bn remained uncollected annually from individuals and companies, providing an opportunity to collect more taxes already due to the state instead of hiking taxes.
“For me the message as it relates to domestic resource mobilisation is to say improve the efficiency of the administration and collect the money that is already due before we raise taxes to collect more money,” Kieswetter said.
“As the VAT increase has shown us, and with our current understanding of the compliance landscape, it’s very clear we have reached that point of inflection where an increase in rates is more likely to have an adverse effect on the overall compliance culture and therefore directly on the ability of Sars to collect revenue.”
The Sunday Times reported that tax increases will be on the cards when finance minister Enoch Godongwana tables the 2025 budget on Wednesday.
When asked for his thoughts on calls for the Treasury to increase the wealth tax, Kieswetter said the wealthy must not feel targeted by tax policy.
“Simply by increasing rates, you don’t increase the revenue collection. You have to understand the behaviour of people. Once you decide you want to reduce your tax burden, you will continue to arrange your tax affairs in ways that will achieve that. And none are more capable of doing that than wealthy people — poor people have nowhere to go,” he said.
“The second thing you don’t want to send a signal on is that you’re targeting wealthy people, because that will also not be good. SA is a wonderful haven for European and other retirees to come and find a home here. We have to remain friendly towards that kind of inward movement of capital flows and people,” he said.
“So for me, we have advocated that better administration of the tax affairs of wealthy people is likely to have a better dividend than simply targeting and singling out and adjusting of rates. It’s never a binary choice. Ministers of finance and policymakers will continue to keep that instrument open and available,” he said.
In 2017, SA introduced a tax reform that increased the top marginal tax rate from 41% to 45% for incomes over R1.5m — with the reform meant to increase government revenue and reduce after-tax income inequality.
A study by SA-Tied (Southern Africa — Towards Inclusive Economic Development), shows that the reform triggered sizeable behavioural responses among high-income earners, who significantly lowered their reported taxable income.
Researchers found the reform led to a R6.48bn revenue shortfall.
Izak Odendaal, investment strategist at Old Mutual, said there is limited room for tax rate hikes in the upcoming budget.
“There will be the usual increases of sin taxes and probably the fuel levy, as well as a stealthy increase in personal income tax by not fully adjusting the brackets for inflation (known as bracket creep),” he said.
“Changes to income tax and VAT rates are unlikely, though there were reports in the weekend papers of this being discussed. Higher tax rates might be inevitable in future if current fiscal consolidation efforts fail.”
Updated: February 18 2025
The story has been updated to reflect that the Allan Gray webinar took place two weeks ago.
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