The South African Revenue Service (SARS) won’t see tax compliance until someone is put in jail.
Earlier this week Finance Minister Nhlanhla Nene said the government faced a difficult task to restore the credibility of this vital institution.
He’s absolutely right. What he won’t want to hear is that restoring credibility to SARS will require both political strength and political will.
Although it would seem that he and some senior members of government have the political will, the fracas caused by suspended SARS commissioner Tom Moyane at the inquiry into the tax agency this week suggests it is still unclear who holds the balance of power.
So until heads start to roll, SARS should prepare itself for a bleak tax season. Taxpayers are legitimately angry, and as more skeletons tumble out of the closet during the inquiry I’ll bet good money that tax compliance is going to get worse.
— SARS SHOULD PREPARE ITSELF FOR A BLEAK TAX SEASON. TAXPAYERS ARE LEGITIMATELY ANGRY.
At best, those who do pay tax are going to do their darnedest to pay as little as legally possible.
The trouble is that even if the corruption, intimidation and wholesale maladministration that took place on Moyane’s watch hadn’t happened, SARS would still have been challenged to collect sufficient revenue for the necessary growth-boosting fiscal strategies.
Robust revenue collection is dependent on robust economic growth, and the South African economy has been short on that. Failing to reach revenue targets for two consecutive years due to the shenanigans of Moyane and his deputy means there has been less money for fiscal stimulus, which in turn has fed into a downward spiral of lower growth and lower revenue.
This has exacerbated an even bigger problem: there are simply too few taxpayers.
We already know SARS relies on a tiny proportion of the population to generate the lion’s share of revenue. According to tax expert Jayson Coomer, only 13% of South Africans pay income tax. Although the remaining 87% of the population contribute to tax through VAT and other indirect taxes such as the fuel levy, income tax is the biggest single contributor, making up 38% of SARS’s revenue.
By comparison, 2017 figures show that VAT contributed only about 25% to the state coffers, while companies tax accounted for 18%.
Changing fast
This arrangement is all well and good so long as those few who are paying the bulk of the income tax feel financially comfortable and that their tax money is being spent fairly.
The problem is that things are changing fast in SA for this type of people.
These people are the middle-class, well educated and upwardly mobile. They are our country’s doctors, lawyers, business owners, teachers, bookkeepers and engineers. They, like other South Africans, have experienced the difficulties associated with the government’s service delivery failures in education, healthcare, infrastructure and personal security.
With the introduction of National Health Insurance the government is messing with another of the pillars of middle-class life — access to quality healthcare. The result is that the cost benefit of living in SA is swinging rapidly in the wrong direction for professionals.
While intergenerational wealth transfers and "white privilege" can act as a buffer, this is not a "white" or "black" issue, it is a middle-class issue.
Assuming that middle-class blacks, coloureds and Indians don’t care about the flagrant abuse of state resources, rising taxes and poor service delivery would be sorely misguided. The cost of medical aids and private school fees is the same no matter the colour of your skin.
I know there is a group of people who couldn’t care less about the troubles faced by the wealthy and the middle-class, but I’m telling you that it matters because they pay the bills.
Coomer says the top 1% of taxpayers pay about 61% of the total income tax bill. Those earning above R500,000 a year pay more than two thirds.
It also matters because these people have transferable skills and are in demand on a global level. There is currently a journal article under review on the number of professionals who have emigrated from SA, and I suspect the findings will make for uncomfortable reading.
Poor governance
Everyone has suffered as a result of poor governance in SA, the poor probably more than most, but wealthy taxpayers are the most able to opt out.
To add insult to injury, we also heard at the commission this week how SARS’s large business centre was systematically dismantled.
The unit was specifically aimed at corporate taxpayers, multinationals and high net-worth individual taxpayers, and had contributed some 30% to SARS’s overall revenue collection, but it’s largely hollowed out now. The result is that if SARS is to have any hope of meeting its revenue target it will have to go after the little guys like you and me, because they no longer have the capacity to go after the big guys.
What I don’t understand is why, given that so much evidence has been laid out showing who stole the money — and how — no one has yet been brought to book for their role in state capture.
Moyane is just one part of this much bigger credibility gap faced by the ANC government. The fact that he even tried to get the SARS inquiry halted last week is mind-boggling. I wish those in power had the same impartiality and independence as retired judge Robert Nugent.
In years gone by SARS used to run a campaign at the beginning of tax season showing how SA’s tax monies were spent and thanking South African taxpayers for their contribution to making SA a better place.
I dare SARS to do it this year.
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