The South African Revenue Service (SARS) will soon run out of ways to collect more taxes as tax hikes are not an option, and the factors limiting the country’s tax revenue are outside the service’s control.
This is feedback from Deloitte Africa’s tax controversy leader, Bernard Mofokeng, who told eNCA that SARS has been improving revenue collections for several years.
“They’ve recently implemented auto-assessments, have improved their systems, and are conducting more audits than before,” he said.
“So, collections are improving, and they are improving their system. It’s good because SARS is increasing its collections and compliance rate.”
Despite SARS’ efforts, South Africa currently faces a tax revenue shortfall of R56.8 billion.
This is due to government expenditure outpacing revenue and state-owned enterprises’ (SOEs) failures weighing on corporate income tax revenue.
Transnet’s underperformance in the past financial year has particularly weighed on the mining and manufacturing sectors’ operations.
While many of these companies usually make significant contributions to the fiscus through corporate income tax, their inability to effectively transport their products for export hurts their revenue, thereby lowering their tax contributions.
“It’s difficult for the manufacturing sector and mining companies to earn enough revenue so they can pay more taxes. As a result, this has a deleterious effect towards tax collections and how much SARS can collect,” Mafokeng said.
“It’s a challenging scenario for the tax collector, for the government, for business in general. Corporate collections are down, and SARS is actually at that point where there is not much it can do but just stimulate processes for collection.”
It is estimated that Transnet and Eskom are contributing to a loss of about R200 billion in revenue collection.
However, Mafokeng said it is not plausible for the National Treasury to increase taxes “mainly because it’s not the taxpayers’ problem that we’re in this situation”.
“It’s that there’s not been any economic growth, and it’s all up to the government to make sure that the environment is suitable for businesses to thrive.”
He said all the SOEs crucial to a thriving economy must be fixed urgently.
“Until that happens, we’re going to be in this spiral, which is exacerbated by the high fuel prices that we are facing currently,” he said.
“All these factors, most of them are within the government’s control, and hiking taxes will not resolve the problem.”
However, he said that the government will soon need more money from taxpayers, and SARS will have to keep finding innovative ways to collect more taxes and bring more taxpayers into the tax net.
“At a certain point, there’s going to be a limit to what SARS can do, looking at the current economic circumstances.”