Edward Kieswetter’s R300 billion tax headache

Despite the South African Revenue Services’ (SARS) efforts to increase tax compliance, the country’s tax gap is still an estimated R300 billion.

This is according to PwC in its 2024 Budget Preview, which said SARS is finding some success towards its goal to increase voluntary compliance and regain taxpayer trust.

In his 2024 Budget Speech on Wednesday, the Finance Minister said visible progress has been made in rebuilding and modernising SARS.

“The tax authority has expanded the tax register, improved debt collections and reduced fraudulent refunds and trade valuations. This has led to improvements in revenue collection.”

“These and other efforts have assisted with the improvement in revenue.”

Many concerns surrounded this year’s Budget as the government faces a R347 billion deficit for 2023/24 due to overspending and lower-than-expected tax revenue.

While some expected the government to implement major tax hikes or austerity measures to narrow this deficit, both options were unlikely in an election year where the ruling party seeks to be re-elected.

Therefore, many believed the government may rely on SARS to focus on tax compliance to increase revenue.

In November 2023, the Finance Minister said that, alongside measures to stabilise public finances and reform the economy, South Africa’s most effective way of funding the government is through an efficient tax administration. 

He said SARS would continue its focus on enforcing compliance in areas such as debt collection, fraud prevention, curbing illicit trade, voluntary disclosures, and encouraging honest taxpayers to comply voluntarily. 

However, despite these efforts, South Africa’s tax gap – the difference between taxes legally owed and taxes collected – is still an estimated R300 billion. 

Collecting this difference would almost erase the 2023/24 fiscal deficit of R347 billion.

PwC’s 2023 Taxing Times Survey assessed corporate taxpayers’ perceptions of the tax system, their experiences with SARS, and topics like compliance. 

“Given SARS’ drive to improve voluntary compliance and regain taxpayer trust, PwC is of the view there has never been a more critical time for us to assess how organisations and their tax functions are operating,” the firm said.

“In The Wealth of Nations (1776), Adam Smith argued that taxation should follow four principles, namely fairness, certainty, convenience and efficiency.”

“Convenience relates to the ease of compliance for taxpayers: the simplicity of the process for collecting or paying taxes.”

PwC’s survey found that 8% of survey participants ‘strongly agree’ and 43% agree’ that it has become easier to comply with their tax obligations – a marginal majority of 51%. 

This is, however, a 6 percentage point improvement from the 2022 results and indicates that a small majority of corporate responders have a favourable view on the topic. 

The positive trend in compliance feedback is not surprising, the firm said. “Since the publication of our first survey in 2018, the local tax environment has changed significantly.” 

“In the case of compliance matters, for example, SARS’ Strategic Plan 2020-2024 lists ‘make it easy for taxpayers and traders to comply with their obligations’ as one of its strategic goals.” 

“It also aims to ‘detect taxpayers and traders who do not comply, and make non-compliance hard and costly’.”