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SA faces possible tax revenue shortfall of R50-R98bn

Commissioner seen to be making the right moves to restore Sars and get tax-collection targets back within reach, but it might take a while.

By the end of August, the South African Revenue Service (Sars) had collected 37% of the total tax budget for the 2019/2020 year. By the same point last year, it had reached 39%. This suggests that the organisation is going to have a hard time reaching its tax collection targets.

“Extrapolating tax receipts year to date points to a R97.9 billion shortfall in tax revenue for the full year 2019/20,” says Sanisha Packirisamy, economist at Momentum Investments. “But after taking account of seasonality and a normalisation in Vat [value-added tax] refunds, the shortfall falls to around R50 billion.”

Read: Hitting SA revenue estimates will be hard, Kieswetter says

If this does materialise, it would be a fairly significant chunk out of the country’s revenue. It is more than the entire amount finance minister Tito Mboweni budgeted to spend on public transport this year.

Cause and effect

Undoubtedly, South Africa’s weak economic growth is affecting how much tax Sars is able to collect. It is, however, difficult to know how much should be ascribed to this, and how much is due to the revenue service still struggling to reconstitute its operations after years of mismanagement.

As the Nugent Commission of Inquiry into Tax Administration and Governance at Sars found last year, “integrity and governance” at the organisation had failed under its previous leadership.

Nobody should be under any illusions that this, and the degradation of capacity it led to, can be corrected in a matter of a few months.

A look at the Nugent Commission’s final report – listen to Moneyweb columnist Barbara Curson’s interview on SAfm Market Update with Moneyweb:

However, Graham Molyneux, tax partner at Mazars, believes the new commissioner, Edward Kieswetter, is leading a restoration.

“He has a strong track record, and seems to be someone with a lot of energy,” Molyneux says. “He is on a mission with a higher purpose.”

That purpose is to get Sars back to the efficient, credible body it was a decade ago.

Honest assessment

“He has made no bones about the fact that his organisation is not in a good state,” says Mike Teuchert, national head of taxation at Mazars. “He has been given a bit of a broken organisation, and staff morale is extremely low. There are people who are extremely hurt by what has happened.”

Unfortunately this has led to many capable people leaving the revenue service in recent years. This has meant a meaningful loss of experience.

“Kieswetter recently highlighted that there is an understaffing at Sars of about 1 000 people, of which 600 are very critical to the collection process,” Teuchert points out.

One of the commissioner’s key tasks, therefore, is restoring Sars to full capacity.

“They have lost some good people and they have to start replacing those people,” says Teuchert. “Kieswetter has indicated that he is quite keen to poach staff from the private sector. He has to pay attention to having the right people on the bus in the right seats.”

Another key aspect of the turnaround is making it easier for people to be tax compliant. A big part of that is optimising the use of technology.

“One of the things Kieswetter believes is that most people would want to comply with the rules and regulations of the country – most people would want to pay their taxes,” Teuchert notes. “So he is looking at initiatives to make being a law-abiding taxpayer a lot easier. That would more than likely mean making the eFiling system more adaptable, more user friendly and more responsive. At the moment, it is quite unwieldy.”

Restoring faith and trust

Perhaps most critically of all, if Sars is to be successful, it has to regain the confidence of taxpayers. As Kieswetter himself acknowledged in an interview with Moneyweb earlier this month:

“When the public loses confidence in Sars, but also in the overall system of government, they begin to feel morally justified to withhold their taxes.”

Read: Sars rebuilding a ‘game of inches’

One of the ways in which Kieswetter is already trying to correct this is through re-establishing the Large Business Centre (LBC), which deals specifically with large corporates and high net worth individuals.

“There are a lot of people who have been dealt with really poorly by Sars in the last few years – particularly big corporates who are paying billions of rands in tax, and restoring the LBC goes a long way to helping with that,” Molyneux says.

“I would like to see a model where there is a relationship owner for each big corporate – where they have a point person who can sit on the other side of the table from them and have a sensible discussion about all of their tax affairs and what needs to be done. At the moment, with the unravelling of the LBC, taxpayers are floundering, dealing with multiple offices and multiple people that keep changing and it’s really difficult to manage their affairs.”

Successfully addressing these issues is imperative in restoring Sars’s ability to collect revenue as efficiently and effectively as possible. Fortunately, the commissioner appreciates the task he is facing.

“Kieswetter understands what he’s got. He has a lot of rebuilding to do, but he has identified what the issues are, and he is addressing them,” Teuchert says.

“It’s now a matter of plugging the gaps. Hopefully he can get it right within a year for the good of the country. But I think it might take a bit longer than that.”

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I do believe that there is light at the end of the tunnel. I read somewhere that murders are on the rise in SA. This should reduce the overall waiting time in qeues at SARS, leading to an increase in taxpayer satisfaction.

at the rate, murder is increasing perhaps they should create a murder tracking EFT and list it on the JSE. we’ll all make killing.

It’ going to be a spiral. Instead of cutting taxes to bolster economic activity and increase tax base, they are going to increase taxes further burdening the corporates and few individuals and stranging the economy some and it becomes a rabbit hole.

Wonder if it has ever crossed his mind that the reason for the shortfall is to be found in the policies of whoever deployed him.

You destroy the economy yet you expect taxes to increase. That is very clever and demonstrates his deep understanding of the problem.

What about your comrades that stole R 1.5 trillion from SA? TAX FREE!! No mention.

Like madam at the NPA they are just there to tell us how bad things are. Should we feel sorry for them? Who broke it in the first place?

I don’t care what Kieswetter believes. Just another deployee of a socialist regime that is failing. Stop flogging a dead horse man.

No need to post my comment. You have said it all. Agree 100%.

The problems are still coming, I am a living example of why the tax revenues are dwindling. I was retrenched a year ago, my PAYE was over R300k. For at least the last 5 years before my retrenchment I never paid SARS anything less than R300k. All that money they will never get from the business that employed me. That position will never be replaced as the work will be absorbed by the existing team. Thats one example… the banks are looking at retrenching more than 10 000 people in the next 36 months (with SBSA closing 100 branches). Mines are planning retrenchments of over 20000 people in the next 5 years. How many will the SOE’s put out of employment in this current admistration?What about failed businesses, we see them in business rescue day in day out. The biggest single problem is the rampent corruption in the country in general…. Where in hell does SARS expect to see revenue growth from?

State employees, all three levels, doing business with their employer, depriving genuine business & their employees a chance to make a living, including paying tax – a death spiral if there was ever one. Again some 80 000 businesses closed / went dormant over the last 10 years.

The business that employed you is now more profitable by the amount of your salary, and is paying tax on that ?

Do all those bank employees have no skills that the rest of the economy needs ? considering the lack of administrative capacity in municipalities, say.

Miners, much more problematic, not least where they’re located.

I think we could cheerfully forego the PAYE of excess SOE employees if it saves their entire employment cost. If we manage to shed any of them.

The issue is unproductive state expenditure – including corruption but not limited to it. We spend much more on education than is lost to corruption, but we still can’t produce sufficient employable youth.

Subject to correction, 98bn is the equivalent of 4% on VAT ?

…..pensions will be raided
…..taxes will increase
…..tax bracketing will remain
…..fuel tax will increase

…..and no one in the ANC will step forward and announce the first task of civil servant retrenchments in Gov.Depts and SOE where over staffing has exploded

Other cuts ( numerous) are too required but it won’t happen during any period of ANC rule OR that of another governing party
The banana republic party has started

Well analysed, Leah.

I believe the nation’s pensions (govt & private) will first be raided to assist the State’s uncontrollably large employee cost…..long before the IMF will be approached as a final resort.

My prediction is that SARS/Treasury will likely keep the current Indiv income tax brackets unchanged for the next few years 🙁 (in reality, as you say, it will INCREASE due to inflationary effect).

The banana will rot…

… Pensions will be raided – cash in your pension now and invest directly in the JSE. There is already a movement afoot to get away from pensions.

… Taxes will increase – not necessarily. Government is striving to give tax relief to the poor, so pensioners can benefit. Some tax planning can reduce the pain. Also if you are self employed and not a professional, make use of the Presumptive Turnover Tax and save tax.

… tax bracketing will remain(the same) – Trevor come back, all is forgiven. Trevor adjusted the tax brackets every year for inflation.

… fuel levies will increase – buy a more fuel efficient vehicle and plan your travelling appropriately.

But you left out the most important one … VAT will increase to 16% ensuring everybody will pay and here you have the option not to spend.

#IamstayingbecauseIhavenochoice

Whatever the changes that are made will have a relatively minimal effect as long as the State Capture perpetrators, their patronage networks and politically connected fraudsters are continually left untouched. They might plug a few holes in the side of the bucket but as long as that large gaping hole which nobody wants to touch (eg NPA) or even talk about (eg Cyril) right at the bottom, and in the middle, remains unplugged, looting will continue while SARS pursue the little man.

Please stop referring to mismanagement, just call it what it is: years of ANC management.
Regain trust with the likes of Magashule still in top ANC positions? Don’t think so somehow.

Only 98bn short. No problem. Time to give inflation plus increases to all government employees, bailouts to all SOEs, and up the pensions to parlimentarians.

#Ihaveleft

…hope you declared your deemed CGT “exit tax” (on certain assets in SA and abroad) on your SARS return in the year you became non-resident?

MichaelfromKlerksdorp – good question – this is one area you don’t mess around with. I used a law firm to manage my tax affairs, financial emigration and what I refer to as tax emigration – proving without doubt that I am non-resident for tax purposes. SARS will not get their sticky fingers on my hard earned foreign loot.

They can make up the delta by taxing Jacob Zuma. Has he ever submitted a tax return ? Must be billions in outstanding taxes by now.

Once he exhausts his appeals it will be a race against time to confiscate his passport before he flees to Dubai. Then we may have some leverage.

Lets remember what happens to the tax money. It is used to bail out Eskom and SAAs which are failing due to stealing and mismanagement. Eskomis in a crisis and the managers refuse to be vetted (because of their stealing)-that behavior is unsustainable and it is immoral to expect a salaried persons hard earned tax money to be wasted on supporting ANC cadre controlled crime. Add on the bloated salary bill, private health, security and education then payment of taxes is NOTHING but redistribution .

Taxation is, philosophically, designed to direct wealth from rich to poor, to “correct” the natural tendency for wealth to flow from poor to rich.

The SA case is exactly to direct the flow from the “rich” (i.e., those that still have some capital that hasn’t been squeezed out by SARS or hasn’t been taken to other “places) to, not the poor, but to the “neuveaux riche” as a result of devices such as BEE, political self aggrandisement and the like, By the self-appointed so-called (but falsely) liberators.

All this philosophical (but true) design is in fact draining the national stash in the direction of self-important specific individual peoples.

Lol and I still meet muppet South Africans that are super optimistic about the country finances. This might sound like a childish statement but the best thing that could happen this this place is if China “got more involved”. Far fetched? Take a stroll around Kenya and Tanzania. How long before China runs Eskom?

@CTExec.

NOT FAR FETCHED, especially if one study the inner workings of “China debt diplomacy”. China is possibly on the cusp of “helping SA in joint future development”, knowing very well many inept 3rd world governments are unable to repay their debt due to poor economic policy choices.

Take Maputo for example: that new Katembe-bridge was financed by Chinese money, and the debt owed to China is 20% of Moz’s sovereign debt. Wonder what the Chinese will want in return?

Back to SA, China could barter Durban, R’Bay or CT harbour from the ANC, in return for “helping” SOE’s with debt. The long-term aim is to control the movement of world trade by owning strategic “ports of entry/exit”, which can be cut off by PLAN-navy.

Am not worried….nothing to fear the Chinese. Although SA trade/customs will go via Chinese soil (in Yuan), it will most likely be run more efficient & at lower operating cost than our National Ports Authority.

What if Beijing tells the ANC govt “we will cut off all loan-funding from SA’s SOE’s, unless SA scrap it’s 40% import protection on vehicles”.
Phoof….in one fell swoop, there goes SA’s last industrial pride…our motor manufacturing industry! NOW I’m worried / sit up and take notice.

Wait till I tell you what could happen to Australia’s trade, when (not if) the US Navy slowly lose its dominance in the South China Sea. Then Saffas emigrate there, thinking they’re safe 😉 For now.

Thinking rationally about it: what’s worse? (i) your pensions/life-savings embezzled by the ANC-govt over time , or (ii) your pensions intact, and simply show your passport when you visit Ushaka Marine World or V&A Waterfront?
(…won’t be nice for SA car industry jobs 🙁

The situation with Eskom is nothing more than a microcosm of the ANC government and how it is destroying the country. It is obvious that those running SoE’s are deployed cadres with little intelligence, a total lack of business concepts, all believe tomorrow will be better than today, and are all overpaid in terms of their capabilities. The most disappointing person in SA right now is Ramaphosa who is acting like a chat show host – all his statements and intentions are nothing more than bluster

The anticipated R90+bn revenue shortfall is POSITIVE NEWS in fact!

….it implies there’s less income that Govt can WASTE!! (“fruitless and wasteful” expenditure).

Govt needs to learn to live WITH LESS, like most of the South African civil population had to already pull our belts tighter.

This is exactly what happens when the business community is treated by the Zupta-regime as the “enemy of the state” the last decade or more. (#WMC)

Some wisdom for the ANC today: “Business go where they’re treated best”.

@MichaelfromKlerksdorp……Mmm

This coming from someone in our previous article thread who said ‘we need to pay taxes’

???

@Realitybites

Indeed “we need to pay our taxes”….what is due under the law, nothing more 😉 Also a bit of tongue-in-cheek today.

Kindly let us know YOUR view of Income Tax??

(Off-topic, I enjoyed the crypto talk earlier in week. You’re right, it leads one to critically think. As a rational thinker, I get the impression that the uptake to crypto seems to lose traction globally. Also blockchain has its limitations…disappointingly slower acceptance than initially thought. Trust in blockchain one of the issues. Crypto is not truly “decentralised”…it’s merely “private money” controlled by other individuals whom you don’t know. Why entrust your virtual money people you don’t know, but instead fear a central bank which operates in a regulated industry. Was crypto born out of irrational fear by Sathoshi?

Did a BTC cost comparison earlier this week (incl. ccy conversion between ZAR & USD). There is a 8% “premium” that South Africans pay at say Luno Exchange versus the BTC price abroad….the traditional bank at 3% spread is cheaper, incl. bank transaction fee. BTC lis more costly 🙁 Known as the “Kimchi premium”. Wasn’t the original idea of crypto to be able to transfer across international borders at no or low cost? Developers seemed to’ve lost sight as to why currency exchange rates exist in the 1st place between countries 😉 So the BTC-premium (some conveniently refer to it as a commission) is in fact exactly like an “exchange rate” between countries. Becoming now even more of a sceptic. Hopefully something more useful will morph from blockchain/crypto in future.)

The fear in the global banking system is also unfounded. Like the web, it’s a money system that’s been tried and tested & honed from centuries ago. Most Fiat-money is in digital form in any case, with small % cash floating around.)
Anyway…I’m sabotaging the topic. Look forward to chat on another thread.

A R50+bn revenue shortfall is fake news!

Govt receives MORE THAN ENOUGH revenue when skillfully applied.

This is your Captain on the Titanic speaking: “the whole is bigger than we estimated” And it’s increasing!
How does the captain & his crew respond? No, let’s pop another cork and continue with the existing wild party & lets spend…

This shortfall, load shedding coupled with prescribed assets and more probable direct and indirect taxation – the fat lady has started singing and all is lost…

There is no shortfall. There is constant theft which leads to them needing more from us, the people who actually work for our money. When will the sheeple of this world wake up and realise there is no such thing as an honest politician.

Malema and Shivambu with their slush funds are easy pickings for SARS!!!!

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