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Tax takeaways from the mid-term budget

One hopes that all parties realise the need to make sacrifices: Sars Commissioner Edward Kieswetter.

DUDU RAMELA: Let’s take a look now at tax takeaways from the mid-term budget. My colleague Ryk van Niekerk is in conversation with Edward Kieswetter, the commissioner at Sars.

RYK VAN NIEKERK: Edward Kieswetter joins me now, the commissioner of the South African Revenue Service. Edward, thank you so much for joining me. Tito Mboweni said today (October 28, 2020) that tax revenue will be R313 billion below the February forecast. That’s R9 billion less than the projection in June. That is a lot of money. Where are you seeing the lower than expected revenues?

EDWARD KIESWETTER: What’s important to realise first, Ryk, is that the swing in the actual GDP forecast is the main reason why there is the downward projection against the earlier estimates. But, in addition to that, I think we also see a decline in compliance levels, as well as areas of concern in the criminal and illicit economy.

To answer your question specifically, we have seen 11.6% in the first half from employment taxes. And that is a concern because we have also seen an increase in directives for retrenchments going up almost double for the same period last year. We’ve had 248 000 applications versus 144 000 last year.

And then also, as you have heard, the second-quarter job losses figure announced is 2.2 [million]. And what that means is that’s not just a decline in revenue performance for this year, It is a permanent impairment, or at least a short-term impairment of the tax base, mainly in the financial services, manufacturing, construction and the wholesale sector.

The second big area is business income. We [are seeing] a 22.5% decline. And then we’ll also have the concern that it’s not just a short-term loss of profit, but it is also an increase in business-rescue applications, and liquidation applications have gone up significantly compared to the same period last year.

And then the third big area is domestic Vat. That has gone down 6.5%. Obviously there’s the impact of the alcohol and tobacco industry.

And then we have seen a 22.5% decline in imports. And that basically is explained by a 21% decline year on year in the level of imports into the country, which also explains why we’re currently sitting on a trade surplus.

RYK VAN NIEKERK: Yes, I can appreciate that the tax revenue is very correlated to the economic performance of the economy, but our tax base is so small. How much tax money is available outside the existing tax base? Or, put differently, are there people and institutions and companies and businesses you can target to supplement the current tax revenue?

EDWARD KIESWETTER: In terms of what we call the “white collar” area of aggressive tax planning, we have seen concerning levels of offshore transfer of South African funds in the form of interest payments and other services that are charged between international parent companies from South African subsidiaries, and that clearly is a risk of not only offshore short-term tax revenue, but also an erosion of the tax base. That’s a concern we’ve raised before.

We have a concern that all of the individuals in South Africa who have financial assets offshore might not have disclosed that properly. We are aware that there are more than three million South Africans who have bank accounts offshore.

And then, thirdly, we have expressed concerns in the area of imports, customs under-declaration trade, mispricing, and then also on exports, the manipulation of Vat fraud by irregular what we call round-tripping – people actually posing that things are exported but they are just round trips – and also overstating the value of exports to gain from the Vat-refund system.

So they are significant numbers. The numbers are large. We have previously reported that we have at least R100 billion outside of the tax net at the moment, which will require hard work, continued efforts to improve compliance, and to bring those who are guilty to book.

RYK VAN NIEKERK: But do you have the capacity to do that?

EDWARD KIESWETTER: Capacity isn’t zero or 100%. Of course, Sars has 12 000 staff in the areas that we need. But, as we indicated to parliament earlier this year, we are significantly under-resourced, and would need between R400 and R800 million more just to respond to some of the areas we believe we are not currently touching. And we have over 1 000 vacancies, 650 of which we consider critical at this stage.

RYK VAN NIEKERK: And then another way to increase tax revenue is to increase taxes, but there is a thing called the Laffer Curve, which suggests that you reach a point where, if you increase taxes it doesn’t lead to an increase in revenue. How far do you think we are from that inflection point of the Laffer Curve?

EDWARD KIESWETTER: I think many of the industry commentators have indicated that that inflection point – the minister himself has, as in the February announcement, you will recall, indicated that in fact he wants to trend towards … norms as far as tax-to-GDP ratio and corporate tax rates are concerned. But he has also indicated in today’s announcement that we will need to find an additional R40 billion of tax revenue.

But the Medium-Term Budget Policy Statement is not really a time for looking at tax rates. And so the minister will indicate in his February speech how he thinks about that. But I think he has been very clear in terms of his intent.

RYK VAN NIEKERK: Just lastly, the minister also announced a possible freeze in salaries of public employees, as well as potential pay cuts for senior employees. Has the revenue service been consulted, or have you been consulted regarding this proposal? And what do you think the reaction would be if it is implemented?

EDWARD KIESWETTER: It’s really the domain of the minister of public services, not really the domain of the minister of finance, and certainly not the domain of Sars. So we can only wish the minister responsible for that area well, because negotiations, as you all know, are tough. But we remain positive that the best possible outcome will be achieved.

I think what’s important to note, the minister has issued almost a warning to South Africa, but also to the rest of government, to say we are heading for darker times and, while we are walking in the light, now’s the time to act. And a big thing obviously is government expenditure, and a big component of government expenditure is salaries.

So one would hope that all of the parties, the stakeholders, understand that we will all have to make sacrifices.

RYK VAN NIEKERK: Edward, thank you so much for your time today. That was Edward Kieswetter. He’s the Commissioner of the South African Revenue Service.

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Reading this… its as if Kieswetters hands are in handcuffs…

We should get every single 17 or 18 year old in Grade 11 to register for tax. Even if it’s with zero incomes.
Then we should get them all to register small companies and manage pocket money through it.
Great learning curve and some of them that wouldn’t otherwise will end up in the tax net.

Oh and the other thing SARS needs to relax on is the 90% provisional tax thing – it scares us provisional tax payers and because of the penalties people end up under declaring as its punitive

People vote with their money, if government is short of tax income, they must be dumb not to realize people are not trusting them with their policies. For instance after all the mouth washing about SAA, here we have again another bailout. Seriously?

Cannot wait to make sacrifices to keep the ANC apparatchiks in luxury !

That’s the spirit – spoken like a real Patriot!! Always there for his Rulers!!

Listened to it last night.

I think the reduced Revenue collection should not be SARS’ problem. As a dept, they can provide the reduced income to Treasury/National Govt in apathy “here we go, do with it what you can”.

It’s govt’s problem. Not SARS’s. SARS does well under economic circumstances.

I mean WHO the hell brought economic lockdown to SA? Definitely NOT a virus. It was our leadership.

EXactly… Their function is revenue collection. And to do it properly and efficiently.

And where there is tax evasion. and this includes politically connected individuals (JAcob zuma for instance and his Nkandla) … they need to do their job 100% …. clamp down on the rot!

Precisely. And the govt fails to realise that SA is a much smaller country (in economic terms) that it was before.
They need to trim their size of government in line to this shrinking nation it serves. That is reality.
The ANC has themselves to blame after 26 years of mismanagement and plundering (…soon we can quote saying “three decades” of misrule)

Typical ANC Goebbels speak – alluding to getting additional tax from “white collar” (read “white people”) with tax efficient schemes and offshore business. But right under his crooked and closed nose are the taxi industry and heaps of tenderpreneur types (Gupta / Zuma connections) getting off with no or minimal tax.

None so deaf as those who will not hear.

The private sector has made far more than sacrifices, we’ve been suffering. Now it is time for the politicians and bloated public servants to make their sacrifices. 50% retrenchments and 30% pay cuts for the remaining personnel.

Rather consider emigrating to Mauritius, rent a car and house in South Africa for 182 days a year and pay as little as possible to the kleptocrats. Move effective management of your business to Mauritius and pay SA tax only on situs profits( easy to minimise-interest, IP fees etc)

Yes-you pay CGT on your assets when you flee the failed state but at least its a once off-after that they get no more money from you for SAA.

…that is what I call a brilliant mind! 🙂

Not so clever. As a nonresident you will still pay tax on your SA sourced income. What do you score then?

@jnrb.

Well, isn’t then in such example you would become a Mauritian tax-resident post-emigration (with just more time in MAU than in SA). And income from a worldwide source would be declared in Mauritius (at 15% flat) right?

Here’s an idea – why doesn’t Govt employ all the unemployed people in the country and pay them all huge salaries. This would improve tax revenue dramatically, solve the unemployment crisis, make the unions very happy, pacify the communist party and guarantee them millions more votes in the next election. There’s a prize for any ANC voter who can spot the flaw in this strategy.

This logic is not new it was advanced for the arms deal. Where because the offset on most armaments was greater that 100% many politicians argued that paying more for the arms was better because the more they paid the more they got back. We say how well that deal ended. Politicians do not realise that government employees are not tax payers but are tax recyclers.

*lol* yes, was it Winston Churchill that said:

“For a nation to tax itself into prosperity is like a man standing in a bucket and trying to lift himself up by the handle.”

End of comments.

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