SA Revenue Service (Sars) boss Edward Kieswetter has drawn attention to the interplay between tax policy and administration by reiterating his stance that raising taxes would complicate his job in the long run.
Kieswetter’s remarks, made at a meeting of Group of 20 (G20) finance ministers and central bank governors in Cape Town on Wednesday, come amid broader discussions to address SA’s budget shortfall.
This after the cabinet refused to sign off a two percentage point increase in the VAT rate, which would have added about R60bn to the R2-trillion budget.
“In terms of raising taxes, we understand and accept it will always be a consideration for ministers of finance, but it’s not a free call,” Kieswetter said.
“Every time there are consequences, so removing money from the economy means that you might stifle growth in economic development but also growth in the tax base, which ultimately is the goose that provides the eggs.”
Three sources in the ANC, the biggest member of the government of national unity, have said that their party would float the idea of introducing a wealth tax to the world’s most unequal society.
In draft budget documents, a parliamentary standing committee on finance “is exploring progressive taxes, including taxes on luxury items and wealth taxes”.
The cabinet held its first special meeting on Monday to come to a consensus before finance minister Enoch Godongwana heads to parliament next month to present the 2025 budget.
Tax policy is only as good as the ability and capacity to administer it.
— Sars commissioner Edward Kieswetter
In comments that took a veiled shot at introducing taxes on wealthy individuals, or those with liquid assets worth about R20m, Kieswetter said it was important for taxes to be perceived as fair and equitable.
“Unless taxes are seen to be equitable, it undermines trust and inadvertently erodes compliance and revenue,” said Kieswetter, whose five-year contract as the head of Sars was renewed by another term in 2024.
He repeated his comments, reported by this newspaper last week, advocating for a focus on improving compliance to close the tax gap, which he has previously estimated at R800bn, or about 40% of the total budget, and enough to pay off Transnet and Eskom’s debt loads.
Kieswetter reiterated there was a need for more robust compliance measures, saying there was a vast informal and cash-based economy that could be brought into the tax net with an effective, well-funded tax administration.
The informal, cash-based economy is estimated to be worth hundreds of billions of rand, attracting companies with established bottom-of-the-pyramid strategies such as Capitec and Shoprite, both of which have far outpaced their rivals in banking and retail with millions of clients and loyal consumer bases.
Launched into action by the outbreak of foodborne illnesses that led to the deaths of dozens, President Cyril Ramaphosa ordered the registration of spaza shops late last year, a move that will bring them into the tax net and make it easier for Kieswetter to go after them.
“There is an indivisible nexus between policy and administration and I cannot say that loud enough and more emphatically,” he said. “Tax policy is only as good as the ability and capacity to administer it.”
Kieswetter’s remarks at an Allan Gray webinar three weeks before the budget was rejected but released publicly the day before, exposed tension between him and Godongwana.
Godongwana was captured in a hot mic mishap expressing frustration with Kieswetter, saying: “He handles tax administration. I handle tax policy. It’s important we each stay in our lanes.”
At the event, G20 finance ministers and central bankers discussed matters such as the spending pressures that countries face amid rising costs for households and businesses, and tax avoidance and capacity challenges in dealing with revenue collection in emerging economies.
IMF MD Kristalina Georgieva said that just as important as collecting high tax revenues was the ability to spend tax revenues effectively.
“Quality of public spending matters, not only for the wellbeing of the economy. It matters for creating public support among businesses and households for the need to contribute to the public purse.
“And let’s admit here that there is a lot of work to do in that area,” she said.
Georgieva said emerging economies continued to struggle with enhancing collections, with lower collection levels than those of their more developed counterparts.
She added that inefficiencies in spending what was collected also hampered public support for existing taxes.
“On average, over 30% of resources allocated by emerging markets to create and maintain public infrastructure and close to 40% in low-income countries are lost to inefficiencies.
“It is an important topic to keep in mind, that the public will be supportive of paying taxes if they see that their money is wisely used.
“Today, the public appetite [for tax hikes] is at historical lows, and yet it is paramount to acknowledge and use the significant potential in developing countries to improve that capacity, enhance revenue mobilisation and strengthen the efficiency and use of these resources.”
Georgieva said the gap between average and potential revenues in developing economies was 7% of GDP, meaning space to collect more resources was significant. However, she said, it was worth considering broadening tax bases rather than hiking taxes. She said curtailing tax exemptions, deductions and credits could add an extra 2%-4% of GDP in value of collections.
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