Talk of a failed state seems to be our latest national preoccupation, from my concerned neighbourhood WhatsApp groups to chats with small businesses and overseas fund managers and investors — all no doubt spurred by the US Overseas Security Advisory Council and insurance industry statements on the need for contingency plans for extended power outages and possible grid collapse.
Nothing would spell state failure more starkly than having to rely on a contingency plan of stockpiled potable water, non-perishable food and battery backups for wide-scale communications failure. Any director operating in this context would be shirking their fiduciary duty if they didn’t consider the risks.
But my sense is that while SA is in the crosshairs of an existential reckoning and the world is waking up to the governing party’s spectacular failure (we have made the front cover of the London Financial Times four weeks running for all the worst reasons) aided by its cosying up to Vladimir Putin’s murderous regime (thanks in no small part, I suspect, to its investment in sanctioned Russian oligarch Victor Vekselberg’s United Manganese of Kalahari), the recent tax revenue overruns paint a more detailed picture.
Over the past year revenue collection has remained strong despite an uneven economic recovery. Yes, that’s thanks largely to the stuff we pull out of the ground, but there is an underlying strength that SA Revenue Service (Sars) commissioner Edward Kieswetter was right to point to when asked about SA’s concerning brain drain.
The tax-to-GDP ratio continues to recover from Covid-19-induced lows and is projected to reach 25.4% in 2022/23. It’s fair to say that Sars is one state institution that is slowly being returned to world-class status, thanks in no small measure to the leadership of Kieswetter and his de facto deputy, Mark Kingon.
Having commemorated its 25th birthday last October, Sars’ recovery from the state capture era is evident. It has improved revenue collection over the past three years and worked to ensure that its systems, employees and leadership are equipped to enhance the taxpayer experience, boost compliance and produce more tax revenue.
As advised by the Nugent commission of inquiry, Sars completed the reparation process for current and former employees in November 2022. It keeps constructing a tax administration that efficiently and fairly collects tax revenues. This, along with a still largely free and independent judiciary and fourth estate, underpins the private sector strength I wrote about last week.
Hosting a recent budget post-mortem for the Chartered Institute of Business Accountants, the feeling in the room from tax practitioners is that Sars is starting to regain its swagger. Great news for the fiscus and a warning for company and personal income taxpayers.
The pay-as-you-earn (PAYE) and personal income tax administration reform mentioned in the 2020 budget has allowed 2.9-million individual taxpayers to be automatically assessed without having to file personal income tax returns, as well as given pensioners the choice to agree to more accurate PAYE withholding rates to account for multiple sources of income.
To lessen the administrative burden on employers, payroll processors, Sars and individual salaried taxpayers, the reform will continue over the medium term. In consultation with employers and representative organisations work has begun to fully automate the monthly delivery of employer and employee data.
The requirement for employer PAYE annual reconciliation is expected to disappear over time. But there is one area where Sars has received a bloody nose from the courts, and that relates to how it imposes understatement penalties. SA courts have changed their approach to interpreting the Tax Administration Act’s penalty regime for tax understatements.
The act requires Sars to impose penalties on taxpayers depending on their behaviour when completing their tax returns. In the past Sars was choosing the penalty percentage without considering the appropriate behaviour, but the courts have ruled that the penalty percentage must be determined on this basis. Two Supreme Court of Appeal cases have also ruled that if a taxpayer makes an error in good faith penalties should not be imposed.
These decisions bring clarity to the penalty regime, and practitioners I have spoken to hope Sars will re-evaluate its application of the legislation or that the legislation will be amended by parliament. What this demonstrates is that our courts are working, businesses can still operate within a system that offers legal certainty, and tax revenues have not yet dried up to the extent that basic services face near collapse.
It also raises the issue of the social contract between taxpayers and their government. And by taxpayers I don’t mean Lindiwe Mazibuko’s rather patronising definition in the Sunday Times under the headline “Jig is up for the use of ‘taxpayer’ as racist dog whistle”, that of taxpayers being white and privileged. I mean anyone who buys anything, pays VAT, an all SA citizens’ definition of taxpayers.
While we remain compliant and Sars correctly strictly enforces that duty of compliance, equally the duty to spend that money efficiently, and obviously not to steal it, must be enforced. In the context of a social contract one could argue that we have reached state failure already, because government is not holding up its end of the bargain.
With that in mind, the rising threat of a tax revolt cannot be glibly dismissed.
• Avery, a financial journalist and broadcaster, produces BDTV's Business Watch. Contact him at Badger@businesslive.co.za
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.