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Treasury might want to ease up on Sars

Consistently setting unachievable revenue collection targets is unlikely to help the turnaround.

The South African Revenue Service (Sars) reported its preliminary results on April 1, revealing a revenue collection shortfall of approximately R14.6 billion for the 2018/19 financial year. As many have been quick to point out, this makes it the fifth consecutive year that the organisation has missed its collection targets.

Read: Sars: No quick fix for legacy of ‘disastrous’ few years

What is not immediately clear from these numbers, however, is that there seems to be a growing disparity between National Treasury’s projections with regards to tax revenue collection at the start of each financial year and Sars’s ability to meet those targets.

While revenue collection is R14.6 billion short of the revised R1.302 trillion target set during the 2019 budget speech in February, Sars actually missed the collection target set during the 2018 budget speech by substantially more. Revenue collection is in fact R57.4 billion less than Treasury’s initial target of R1.345 trillion.

Source: Author, Sars

Comparing the collection estimates made a year prior to the actual results, one can clearly see how quickly this disparity has grown. The financial year ending March 31, 2015 saw Sars fall short of the initial target by 0.7% (R7.355 billion). This percentage has been steadily increasing over the last five years, jumping to 3.9% (R49.024 billion) in 2018 and peaking in the current financial year at over 4% (R57.365 billion).

While Sars is in the process of making many positive changes to improve its ability to collect outstanding tax revenue, the projected revenue for 2019/20 leads one to wonder if Treasury is consistently setting an unachievable target.

Treasury’s projection for tax revenue in 2020 is R1.422 trillion, which is 10.5% higher than the actual taxes raised in 2019.

Overly optimistic

This prediction seems overly optimistic in light of the fact that the World Bank recently cut its growth forecast for South Africa for 2019 from 1.8% to 1.3%. Furthermore, the 2019/20 budget did not put forward any interventions conducive to stimulating economic growth in the country, having not introduced much in the way of tax incentives that could help grow employment and, by extension, the taxpayer base.

As usual, the bulk of the tax revenue that Sars aims to collect is expected to come from corporate and personal income taxes, which may also prove problematic in terms of its targets. During the 2019 budget speech, Treasury announced that it would raise additional revenue from personal income tax to the tune of around R12.8 billion by not adjusting tax brackets and relying on fiscal drag to do the rest.

However, this assumes that taxpayers will receive inflationary or above-inflationary salary increases this year. In a poorly performing economy, there are few guarantees that this will happen. The taxable income for corporates is also likely to suffer some blows if the economy continues on its current trajectory.

Compliance down

Tax filing compliance in South Africa has also seen a downturn, which is once again pointing to the fact that taxes in the country have reached their limit and that further tax increases are likely to see revenue collections decrease.

According to Sars, filing compliance with regards to PAYE slipped from 83.9% in 2008/09 to 68.9% in 2018/19.

Filing compliance with respect to Vat dropped from 79% to 61.7% over the same period.

While there is undoubtedly some light at the end of the tunnel for Sars with its renewed focus on efficiency and recent appointment of a new commissioner, there are no real guarantees that the organisation will be able to turn the current situation around within the next year or two.

As Sars commissioner-designate Edward Kieswetter recently stated, for the organisation to advance, it is crucial that it be plugged into the economy and understand what is happening.

Perhaps the best starting point would be to take a good look at the goals being set for the organisation, then asking whether the optimism displayed in the current revenue collection target is realistic.

Tertius Troost is a CA(SA) and tax manager at Mazars.

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The long standing policy by government over the last 25 years across SOE’s and municipalities has been to place inadequately experienced and qualified people into roles on the basis of party affiliation and race. There was never an organised and carefully considered handover in areas that were technically incredibly challenging and required top end skills. Existing skills that had been grown by the previous regime as part of a long struggle for self determination which involved huge investments into specific universities, technicons and trade programs were removed without full understanding of how crucial and difficult these roles were. Water and water treatment, electricity, logistics and roads the list goes on as to what has failed under this government and party program. This deployment program had been a slow and responsible process at SARS and the skill levels regardless of race or party affiliation were superb hence the organisation worked and delivered. Tom and Jonas destroyed that program and chased people who could do their jobs properly away regardless of race for the new party corruption program…the organisation has therefore stumbled…big time. It could recover but only with the right people.
Good, skilled, ethical and hard working people make organisations run, please could this governing party learn that…by all means USE those people to train up your band of merry men but don’t trash everything and think you can start again with people who don’t have the energy, experience and hold some dodgy “protect me from yourself” IT diploma.

As go SAA, PRASA, Denel, municipalities, education etc etc, so goes SARS.
It’s inevitable.

AM I the only one noticing how Tax Collections have increased by 30% since 2015, in declining economy! The people are literally being taxed to death. Perhaps the solution is to reduce the overall Tax burden by 30% to stimulate the economy, or to at least look at some form of special economic zones with lower tax rates to stimulate employment.

We cannot sustain above inflation tax increases.

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