Warneke also notes that Treasury expects the tax-to-GDP ratio to fall by a similar margin to that during the global financial crisis, and that there will be a steeper recovery thereafter.
“However, this fails to take into account that there was almost a total shutdown of the economy during the national lockdown, which was not the case with the global financial crisis.”
The value of accurate revenue estimates
In light of the trend of underestimations, Warneke urges Treasury to review “thoroughly” the data that underpins its tax revenue estimates and GDP ratios.
“If these estimates are inaccurate, there is a knock-on effect on the budgeted expenditure levels in each year.”
Warneke says SA no longer has the luxury of basing revenue (and expenditure) forecasts on best-case scenarios. “Living within our means requires realistic estimations, even if that paints a bleaker picture.”
The South African Revenue Service (Sars) finds itself in an incredibly difficult position given past overestimations and the great uncertainty that still awaits the country as it fights the Covid-19 pandemic.
Sars has announced a fundamentally different approach to the annual filing season, which in the past kicked off on July 1. It has now been pushed out to September 1.
Sars has indicated that a significant number of taxpayers will be auto-assessed this year. This means Sars will use data collected from employers, financial institutions, medical schemes, retirement funds and other third party data providers to generate assessments automatically.
Auto-assessment pros and cons
The auto-assessments will enable Sars to reduce the number of visitors to its branches, and thus reduce Covid-19 transmission risks. “Although eFiling has been with us for some years there are still a large number of taxpayers who will visit a Sars branch for assistance,” says Botha. “These may well be the taxpayers that Sars is targeting for auto-assessments.”
It would seem from the announcement that the pool of taxpayers targeted will be typically those with one IRP5, some interest earnings, medical deductions, and contributions to a retirement fund. Data not supplied by third parties will be omitted from the auto-assessment, he says.
“The risk is of course that not all sources of income and deductions are supplied by third parties. Income from trusts, interest on loans outside of the regulated third parties, and donations to qualifying organisations are but a few examples,” says Botha.
Online tax return service Tax Tim advises taxpayers not to accept the auto-assessment.
“We think there are risks involved. Your auto-assessment may be inaccurate, and accepting it could result in you paying more tax than necessary.”
Deductions that may be omitted include donations to charities, home office expenses and wear and tear. “Filing a tax return means that you can include all of your possible deductions so as to pay less tax and maximise your chance of a refund,” advises Tax Tim on its website.
Botha says a taxpayer’s right to the dispute and resolution process should not be affected by the auto-assessment arrangement. If a taxpayer accepts an auto-assessment and later discovers that income or deductions have been omitted from the original assessment, they will be able to file a revised return.
According to Tax Tim, taxpayers who reject the auto-assessment will be able to file their return when the filing season opens on September 1.