The South African Revenue Service (Sars) hopes to reinstitute tax courts as it steps up its enforcement efforts.
Speaking at the release of the 10th annual edition of the Tax Statistics, Dr Randall Carolissen, Sars group executive for research, said tax courts could expedite the movement of tax matters through the courts and is going to be a key part of Sars’s enforcement strategy going forward.
The general criminal justice system “deprioritised” tax matters as it was not deemed that important, he added.
Advocate Eric Mkhawane, CEO in the Office of the Tax Ombud, said local tax courts – which were closed down a number of years ago – could previously prosecute taxpayers for non-submission of tax returns. Currently some taxpayers would rather pay an admin penalty than submit a tax return.
“I think it [tax courts] may help deal with those that are not submitting returns and I am sure the numbers are shooting up for returns that are outstanding.”
Sars is under pressure to intensify its collection efforts after finance minister Malusi Gigaba instituted a probe into the under-collection of revenue. The Medium-Term Budget Policy Statement (MTBPS) showed that tax revenue was expected to fall R50.8 billion short of the 2017 budget estimate of R1.265 trillion for 2017/18. Sars collects roughly 90% of government revenue.
Despite significant tax increases over the past two years, the Tax Statistics revealed that South Africa’s tax-to-GDP ratio has stalled at 26% during 2015/16 and 2016/17 after gradually rising in the wake of the global financial crisis. At the same time, the tax buoyancy ratio, a measure of the sensitivity of tax revenue to changes in economic growth, has dropped from 1.29 in 2015/16 to 1.07 in 2016/17.
There has been concern that the significant drop in the tax buoyancy ratio was related to lower tax morality, a decrease in compliance levels and a deterioration in efficiency at Sars, but Carolissen said during tough economic times the buoyancy ratio moved closer to the long-term average (1) and might dip below it.
“As the economy starts to recover we hope to increase that buoyancy.”
He said tax policy changes were, to some degree, suppressed by the weak economy. At the moment, personal income taxes were only growing at about 8.5%, while the expectation was that it would at least maintain its previous growth rates of 12% (plus the additional policy reform measures).
“That didn’t manifest itself.”
Carolissen said a number of factors influenced tax collection and tax revenue growth. The performance of the economy was probably the biggest contributor to tax collection whilst policy reform, the efficiency of collection and compliance also played a role.
“We have seen slippage in compliance. We have seen an increased trend of people not submitting their returns.”
There were also increasing numbers of taxpayers submitting returns with no payments and submitting nil returns.
It is a criminal offence not to submit a return, he said.
“Up until now Sars has probably been leaning too much on its service and education arm of its compliance strategy and less so on its enforcement arm and I’m afraid that we will have to look at that mix and probably be looking very carefully at those people that are cynically refusing to pay the taxes because they are dissatisfied with government.”
Carolissen said Sars could not allow a slippage in compliance – once it started to take root, it is very difficult to reverse.
“With regards to the efficiency of Sars – I believe we are still a very efficient organisation. I mean to collect the large amounts of money that we actually do, you have to have a machine that is working.”