Concern about ‘disturbing trend’ of deteriorating tax compliance

South Africa is seeing the beginning of a “disturbing trend” where tax compliance levels are deteriorating, the head of the South African Revenue Service (Sars) warned on Monday.

Speaking at the release of the preliminary outcome of tax revenue collections for 2016/17 in Pretoria, the commissioner of Sars, Tom Moyane, said this was not something the country could afford and blamed the media and outside commentators for the development.

“We believe that the continuous negative media coverage and comments by those outside Sars over the past 18 months is having a negative impact on taxpayers and tax morality with respect to their confidence in South Africa’s tax system.”

Moyane said media statements that inferred that there was a lack of leadership at Sars had a concomitant impact on taxpayer morale.

“Taxpayers who have been able to pay their taxes and submit provisional tax in August, all of a sudden in February we saw a very slow uptake.”

Moyane said this was worrisome. Sars contacted all taxpayers who had submitted a nil return – most of them were “reluctant and giving all sorts of excuses”. Sars had been able to follow the trajectory of the behaviour of various taxpayers and the manner in which they paid their taxes over a number of years.

Newly appointed finance minister Malusi Gigaba said while there were concerns about the decline in tax compliance, Sars did not signal that it was perpetual or that it would persist.

Preliminary figures suggest that Sars collected R1.144 trillion in the 2016/17 tax year, R300 000 more than the revised estimate communicated during the most recent budget. The revenue estimate of R1.175 trillion communicated during the February 2016 budget was revised downwards to R1.152 trillion during the medium-term budget speech in October and again in February 2017 as the economic growth outlook deteriorated. Sars collects 90% of all government revenue.

Gigaba said the revenue collected by Sars had been done in an environment where economic growth has been stubbornly low at 0.3%.

“The poor economic conditions clearly played their part in our revenue collection ability.”

In the below video, Dr Randall Carolissen, group executive for Tax, Customs and Excise Institute, unpacks the issue of tax morality and tax refunds in more detail.

The tax collection figures were released on Monday amid significant political turmoil after President Jacob Zuma fired his highly-respected finance and deputy finance ministers, Pravin Gordhan and Mcebisi Jonas, in a late-night cabinet reshuffle on Thursday. Zuma appointed Malusi Gigaba as the new finance minister and Sfiso Buthelezi as his deputy. S&P Global Ratings cut South Africa’s sovereign credit rating to junk late on Monday.

Read: S&P downgrades SA to junk

The downgrade is set to put South Africa’s precarious fiscal position under more pressure as the country’s interest burden will rise. Prior to the downgrade announcement, National Treasury Director-General, Lungisa Fuzile, said the budget deficit number would come “very close” to the 3.4% of GDP that was projected in February.

Brought to you by Moneyweb