The South African Revenue Service (Sars) is likely to come under increasing pressure to improve efficiency and up its enforcement efforts in the year ahead.

Further tax hikes may not deliver meaningful additional revenue and may weigh on an already paltry economic growth situation. The World Bank recently cut its growth forecast for South Africa for 2019 from 1.8% to 1.3%, less than Treasury’s expectation of 1.7%.

While there is a realisation that the country’s finances are moving in the wrong direction (South Africa is spending an increasing proportion on wages and servicing debt), accountability around expenditure is a challenge, as accounting officers of government departments are not necessarily held responsible for spending decisions.

With the election around the corner, finance minister Tito Mboweni will be under pressure to come up with a budget speech that has popular appeal while striving to increase inclusive economic growth and reduce unemployment, says Delia Ndlovu, tax and legal managing director at Deloitte Africa. Eskom, which has already approached government for more support, is likely to take centre stage.

Changes

For taxpayers, the good news is that tax practitioners do not expect to see any increases in personal income tax, corporate income tax or Vat rates when Mboweni provides an update on the country’s financial health on February 20. These taxes account for roughly 80% of tax revenue.

From a personal income tax perspective, tax brackets will likely be widened to benefit low income earners.

“We think the emphasis will be on increasing efficiency when it comes to tax collections,” Ndlovu says.

Treasury’s numbers suggest that revenue from personal income taxes will rise by roughly 9% between 2018/19 and 2019/20. The increase will likely be made up by providing limited fiscal drag relief for higher income earners and through enforcement efforts.

Mike Teuchert, national head of taxation at Mazars, says there is a possibility that Treasury is looking at processes and procedures related to trying to raise the level of enforcement or that Sars will add penalties.

This has already been happening on the corporate side, with administrative penalties being levied where tax affairs aren’t up to date and letters of demand are being issued, he says.

The monthly penalty is determined based on a sliding scale that is linked to the firm’s taxable income and can be quite significant.

Enforcement capacity

In the medium-term budget policy statement, Treasury acknowledged that there were serious governance failures at Sars and that enforcement capacity would have to be addressed. This came after testimony before the Nugent Commission sketched a picture of a revenue authority hollowed out by mismanagement and corruption. Mboweni allocated R1.4 billion from existing budgets towards rebuilding capacity at Sars.

Sars announced in August that it was re-establishing the large business centre and the illicit economy team, two units that previously contributed significantly to its revenue performance.Read: Sars may not be able to collect 40% of its R143bn debt book

Ndlovu says some of the money allocated for rebuilding capacity will likely be used to recruit some of the staff who previously left Sars.

“Our assessment is that Sars used to have about 14 000 employees and based on the conversations we’ve had with Sars officials, they seem to be hovering around 12 000, so they are incapacitated at the moment.”

We may also hear announcements around how Sars intends to continue its technology evolution and upgrade its eFiling infrastructure, which is out of date.

“My hope is that we will see Sars starting to embrace the new technologies, including possibilities of using blockchain, robotics and artificial intelligence to help them to streamline their processes as well as to combat fraud in the areas of Vat and customs,” Ndlovu says.

Teuchert says Sars has lost a lot of good people and to get their enforcement to previous levels will take a lot of effort. Attracting former key staff will go a long way to assist. 

Acting commissioner Mark Kingon’s current 90-day term will come to an end in March and president Cyril Ramaphosa may want to appoint a permanent chief for Sars before the start of the new financial year.

Teuchert says once a permanent commissioner is appointed, processes and procedures can be implemented to establish a new intelligence unit that can assist with enforcement.

At the moment, Sars is trying its best, but it doesn’t quite have the necessary capability and capacity, he adds.