Sars boss speaks out against tax hikes – again

Raising taxes takes money out of the economy, stifling growth and economic development. It also erodes the tax base which is the “goose that provides the eggs”.

South African Revenue Service (Sars) Commissioner Edward Kieswetter did not back down in his views against hiking taxes, when he spoke and facilitated a panel discussion at a side event on Wednesday during the meeting of G20 finance ministers and central bank governors in Cape Town.

Kieswetter’s utterances were made exactly a week after Finance Minister Enoch Godongwana’s controversial budget proposal, in which he proposed raising Vat by two percentage points.

The move was met with significant backlash from various political parties and the public, leading to the postponement of the tabling of the 2025 budget.

Kieswetter’s remarks at the G20 event corresponded with comments he had made weeks ago during a webinar in which he cautioned against the assumption that higher tax rates automatically result in increased tax revenues. He however has expressed similar views several times over the years.

According to a Businesslive report, Kieswetter noted that investment in improving the country’s tax administration is a better option for revenue collection.

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The remarks were not well received by Godongwana.

The finance minister was reportedly annoyed by Kieswetter’s repeated assertions that improving tax collection infrastructure is more effective than raising taxes.

This friction was evident during a media briefing on 19 February after the budget was postponed and where Godongwana was caught on a live microphone expressing his frustration over Kieswetter’s comments.

At the briefing, Godongwana was asked to respond to Kieswetter’s stance on tax increases – to which he responded that the finance minister’s “rule” is to focus on tax policy, while the Sars commissioner focuses on tax administration.

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“It’s quite important that both of us keep to those two lanes,” Godongwana retorted at the time.

Kieswetter, however, reiterated at the G20 event that one of the significant challenges in revenue collection is “underfunding in investment of administrative capacity”.

“There is a nexus between policy and administration. Tax policy is only as good as the ability to administer it. Inadvertently, if you can’t administer a policy, you have a worse impact. This nexus must be considered by policymakers.”

He then added that finance ministers often resort to raising taxes, but taxes must be seen by the public as being “equitable”. If not, it undermines trust and inadvertently hampers compliance and revenue collection.

ALSO READ: Budget 2025: Was the decision to increase VAT by 2% such a bad idea?

Digitisation boosts tax collection

International Monetary Fund (IMF) managing director Kristalina Georgieva, who also took part in the discussion, noted that citizens would be more willing to pay taxes if they see their money is used efficiently.

She said developing countries in particular should use the potential to improve tax capacity, improve systems, and strengthen the efficiency of tax administration.

IMF research has shown that reforms to tax administration can boost revenue by more than three percentage points of GDP over a period of five to six years.

“Digitisation of administration can increase tax collection by one percentage point of GDP, provided of course the reforms are well implemented,” she noted.

ALSO READ: Budget speech: Why Godongwana wanted a VAT increase of 2%

Broaden the tax base, rather than raising taxes

Ajay Banga, president of the World Bank Group, noted that narrow tax bases, wasteful tax exemptions, and weak tax administration are not only limited to developing countries but “everywhere”.

“We joke that nobody wants to pay taxes. The real reason they’re reluctant to pay taxes – besides not wanting to part with their money – is that they don’t see better services in return.”

According to Banga, solutions are within reach. “The first one is broadening the tax base; not raising rates.”

Secondly, modernising tax administration by digitising systems and harnessing artificial intelligence (AI) plays a significant role in improving tax compliance.

This article was republished from Moneyweb. Read the original here.