Any increase in taxes in South Africa will result in a decline in tax compliance, which the country cannot afford as its financial health steadily deteriorates.
This is according to South African Revenue Service (SARS) Commissioner Edward Kieswetter in an interview with Business Times.
Kieswetter said the National Treasury does not believe tax increases are the best way to strengthen the country’s financial position.
“It will affect compliance behaviour, and you cannot afford that. What we saw when VAT was put up to pay for free education was a proliferation of VAT fraud and people fiddling with their taxes,” Kieswetter said.
SARS also noticed a rapid rise in criminal activity from individuals and companies to avoid paying taxes.
Overall, any increase in tax rates would hurt the economy more than benefit it, Kieswetter said.
“Our biggest challenge now is government expenditure, not indiscriminately hiking taxes.”
The SARS Commissioner is not concerned that local or individual tax revolts may turn into a nationwide revolt as people are increasingly dissatisfied with the lack of service delivery from the government.
“My biggest concern is a proliferation of syndicated crime. This is of more concern to me than little fires of tax revolt,” Kieswetter said.
Kieswetter’s comments come on the back of the National Treasury revealing that the revenue from tax collections is substantially below budgeted levels.
Treasury revealed that the budget moved to a deficit of R143.8 billion for July. It is the largest deficit since 2004 and wider than the R115.5 billion forecast by economists. There was a surplus of R36.7 billion in June.
“We are running behind with regard to revenue collection because the macroeconomic assumptions on which the expected revenue was modelled have not materialised,” Kieswetter said.
“GDP is significantly down from where we thought it would be, the impact of load-shedding and the logistics crisis is only now being quantified, and they all turned out to be worse than we expected.”
The only question that remains for Kieswetter is how the shortfall is managed – through tax increases or cutting expenditure.