By Fadia Salie
South Africa will miss its tax target for this year by over R300 billion as Covid-19 continues to wreaks havoc with the economy, Finance Minister Tito Mboweni said today in his Supplementary Budget speech necessitated by the pandemic.
He said SA was already R35.3bn behind on its 2020/21 target, with gross tax revenue collected during the first two months of 2020/21 hitting R142bn. This is compared with the initial forecast of R177.3bn for the same period.
Due to the Covid-19 impact, Mboweni revised downward gross tax revenue for the 2020/21 fiscal year to R1.12 trillion from R1.43 trillion.
He tabled two tax bills – Disaster Management Tax Relief Bill and the Disaster Management Tax Relief Administration Bill – for parliament’s approval as SA’s response package for Covid‐19.
Without elaborating, he said tax measures of R40bn over the next four years will be required and details will be announced in the 2021 Budget.
In the supplementary budget review, the Treasury said it is hoping improved economic growth will lead to an increase in tax collection. It also points to a crackdown on tax evasion as a strategy to bolster the state’s coffers and indicates that tax hikes are likely when the February 2021 budget is unveiled.
“Following five years of large tax increases, the 2020 Budget did not propose new tax measures. Given the extent of fiscal consolidation now required, however, both expenditure reductions and tax increases are necessary to stabilise debt,” it said.
The active scenario assumes tax increases of R5 billion in 2021/22, R10 billion in 2022/23, R10 billion in 2023/24 and R15 billion in 2024/25, it noted.
“The 2020 Medium Term Budget Policy Statement will revisit these projections, and the Minister of Finance will announce tax policy proposals in the February 2021 Budget. As growth recovers, so will tax receipts.
“Corporate income taxes are highly volatile during and after economic shocks, with sharp contractions as lower profits and assessed losses reduce tax payments over several years, followed by a rebound as profits become taxable. As employment and salaries normalise, personal income taxes should be augmented by higher effective tax rates, while recovering consumer demand and investment will bolster VAT and import duties,” said the Treasury document.
South Africa’s tax revenues are expected to rise. “In the current year, tax revenue as a proportion of GDP falls sharply. After 2020/21, tax revenue as a proportion of GDP is expected to follow a similar trajectory to that experienced after the global financial crisis. Additional tax measures, alongside economic recovery, will increase the tax-to-GDP ratio.”
South African Revenue Service investigators say they will focus on the following to extract additional revenue:
- International taxes, particularly aggressive tax planning using transfer pricing;
- Syndicated fraud related to VAT refunds and import valuations;
- Expanding the use of third-party data to find non-compliant taxpayers;
- Improving the collection of debt due to the fiscus; and
- Ensuring that outstanding taxpayer returns are filed and liabilities paid.
Sars turns up the heat on tax dodgers
Full transcript of comments by SARS Commissioner Edward Kieswetter
On tax policy, the minister already indicated in the February Budget speech that his intention was to broaden the tax base as opposed to adjusting the rates because we had felt that from a tax rate perspective we’ve reached a point of infliction where in raising rates does not necessarily extract more revenue. Clearly from a Covid perspective, one has to look at where are the opportunities and that will be a function of the work of the minister and Treasury over the next number of months.
I do think however, what’s important is that it is not as if from a tax compliance perspective we are a fully compliant society, and so what we have as SARS is our work is cut out in a number of ways. We’ve seen general tax compliance levels slipping – whether that is companies who ought to register who don’t register; companies who should submit and file declarations who don’t; a big focus on employers who collect pay-as-you-earn and don’ hand it over to SARS – so there is a lot of areas of non-compliance that we will be focusing on and have in fact begun to focus on.
The second point is there are still organisations involved in aggressive tax arrangements and so you will recall that we have now established a unit to focus specifically on wealthy and complex tax arrangements of individuals who are so-called super-rich and high-net-worth individuals. That will be a big focus alongside the work of having re-established the Large Business Centre.
In the large business we have to amplify our focus, especially on international taxes where we still find significant non-compliance in areas such as transfer pricing, as well as base erosion and profit shifting schemes, and that work will slowly gain momentum.
In the criminal activities we will focus significantly on areas of syndicated fraud, we have seen a proliferation – and sadly even during this time of the Covid challenge, criminals take their chances. Covid does not make you who you are, it simply reveals who you are; so if you were a thief going into Covid, you are just a better thief looking for better opportunities – and so syndicated fraud, especially in the VAT area is an area we will focus on, as well as deliberate misdeclaration of import values where importers go into complicit arrangements with exporters from countries, particularly such as China and India and deliberately seek to defraud the fiscus by misstating import values.
Two general points for us is to expand and increase the use of data so that we can improve early detection through artificial intelligence as well as a greater focus on the collection of outstanding debt. We have seen the debt book, that is debt that is not disputed owed by many taxpayers that is not recovered. So an additional focus to make sure that the debt that is in fact due to the fiscus is collected.
These are the five areas where we will amplify our focus to make sure that at least, even in the trying times of Covid, we must ensure more than ever before that the revenue that is due to the fiscus is in fact collected.
