Each year, soon after the fiscal year closes at midnight on March 31, the SA Revenue Service (Sars) goes public with final numbers on the tax take for the year. This year’s presentation came amid this week’s budget drama. And since one argument against the controversial VAT hike was that it wouldn’t be needed if we just gave Sars more money to improve its ability to close the “tax gap”, it raised some important questions.
The numbers were a good story, and commissioner Edward Kieswetter didn’t hold back in the telling. By the stroke of midnight on Sunday the tax authority had collected almost R9bn more than the March 12 budget’s revised estimates, which themselves were revised up slightly from the failed February 19 budget and October’s medium-term budget. That means the final outcome for the 2024/25 fiscal year is just R8bn short of the estimate finance minister Enoch Godongwana pencilled into his February budget just more than a year ago, a contrast to October when a R22bn shortfall had been expected. All pretty decent in a year in which economic growth came in well below last February’s forecasts.
One might well ask how Sars magics up an extra R9bn in just two weeks (and perhaps even why it can’t do this more often). A big part of the answer (as much as R5bn apparently) was a dividend tax windfall that had been expected in May but was received in March. All Sars will confirm is that it related to a single entity, in the mining sector.
Dividend tax is a tax on individuals, but companies pay it over, or “withhold” it in the tax jargon. Much of the rest of the extra money was corporate income tax, with Sars settling a number of disputes with companies during March, raising more than R2bn by settling disputes with companies.
But though the tax authority always pulls out all the stops, as it should, to meet and exceed targets as that midnight deadline approaches, the bottom line this time is that a fair chunk of the overshoot was thanks to an unexpected one-off.
Which is not to say Sars’ own efforts to improve compliance and pursue the tax evaders didn’t make a big contribution. The commissioner reported the “compliance dividend” or “revenue from efficiencies” yielded R301.5bn (of the total final tax take of R1.85-trillion). This is up 17% on the previous year, with compound annual growth of 18.7% over the past five years, since the then newly appointed Kieswetter launched Sars’ recovery plan. Almost a third of that compliance dividend is basically debt-collecting on arrear debt; a further third is what Sars calls “tax certification”, for example using big data and AI and finding tax or refund fraud; and about R30bn came from pursuing syndicated crime.
How much of this is what an efficient tax authority is supposed to be doing anyway? That’s the big question. It’s not really clear what distinguishes the compliance dividend pot from the broader sweep of Sars’ efforts to get ever better at what it does, or why for example tackling the debt book isn’t part of normal business for a tax authority. More transparency on this would be helpful, especially now that Sars has been allocated an additional R7.5bn over the next three years and should be held to account for the outcome.
Importantly too, the compliance dividend isn’t a separate revenue pot. That this was up 17% for the year doesn’t mean revenue was up that much: it increased by 6.6% for 2024/25, which is better than the 4.9% nominal growth the economy achieved, so better compliance clearly helped offset a weak economy. But much of it that was already included in the budget estimates, as it is each year.
The revenue estimates in the budget are not Treasury estimates: they are done by a joint Sars, Treasury and Reserve Bank team, which comes up with detailed economic growth and revenue forecasts. Sars certainly should be including how much it can achieve by improving efficiencies, even if it will want to underplay that a bit to make sure it outperforms on budget targets.
All of which is not to underplay Sars’ impressive turnaround over the past six years. It is the one institution that took early and decisive action to undo the deep damage done by state capture. The strong upward trend in that compliance dividend over the period reflects how formidable that turnaround has been. Sars continues to up its game. Voluntary compliance and public trust continue to improve.
However, that does not make efficiency gains a substitute for increasing taxes, if that is warranted. It might be a temporary option for one year. But relying on compliance dividends to fund permanent increases in spending would be a risky strategy for any government, partly because they can’t be easily predicted or guaranteed, but more importantly because they can easily be reversed. SA’s own experience in the Zuma era showed how rapidly a bad Sars commissioner and corrupt government could destroy years of compliance gains.
Godongwana’s argument originally was that permanent increases in spending should be funded with a permanent tax increase. Whether the drama he set off with his February 19 budget will ultimately make for better tax policy, or indeed better spending policy, is not clear. If anything it could make tax and spending decisions less coherent and less likely to yield the fiscal consolidation government has long promised.
Now SA faces the prospect of a fractured government internally and a hostile, Trump tariff environment externally. It will find it harder than before to grow its way out of its budget troubles. It will need good tax administration by Sars more than before. But that won’t be able to make up for bad policy.
• Joffe is editor-at-large.
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