Sars hopes to restore public trust and credibility

The South African Revenue Service (Sars) hopes to rid itself of perceptions that it is an inefficient organisation marred by controversy and wants to restore its credibility and relationship with taxpayers.

This comes in the wake of significant criticism following an exodus of highly skilled staff at the institution, a Tax Ombud report concluding that it was unduly delaying certain refunds and allegations that public finances suffered under the leadership of its suspended former commissioner, Tom Moyane. There has also been growing anxiety about a deterioration in taxpayer morality and how it might affect the fiscus going forward.

Speaking at the release of the preliminary revenue collection figures for the 2017/18 financial year, acting commissioner Mark Kingon said going forward, Sars would focus on restoring credibility and its relationship with the taxpayer.

“The mandate of Sars is clear – it is to collect revenue towards our government’s developmental agenda, towards a flourishing South Africa. If Sars does not work, the country stops working,” Kingon said.

“We want to get back to the basics and simply do what is right.”

These efforts include responding to skills turnover and strengthening its administration skills – particularly with regard to high-net-worth individuals and illicit financial flows as recommended by the Davis Tax Committee.

Other focus areas include small and large business segments and estates.

Kingon conceded that the administration of estates was not optimal and said Sars would introduce a one-stop, end-to-end service to address frustration in this area.

Regarding concerns about diesel refund delays, he said significant risks were identified and Sars had to perform more audits.

In the video below, finance minister Nhlanhla Nene talks to Moneyweb about initiatives to restore Sars’s credibility and Treasury’s stance on land expropriation without compensation.

Revenue figures

Sars collected R1 216.6 billion in the 2017/18 financial year, roughly R700 million less than its revised target.

According to its head of research, Dr Randall Carolissen, the deficit was largely driven by under-collection related to VAT and dividends withholding tax, while fuel levies, corporate income tax and personal income tax also missed its projected targets.

Carolissen said prior to November tax revenues grew at a “rather pedestrian” rate of roughly 6%, but the three months through February saw relatively strong growth, and the aggregate growth figure for the year improved to about 7%. However, revenue collection contracted in March, and as a result overall collection grew by 6.3% in the past year. The contraction was primarily due to lower-than-expected dividend declarations and the fact that customs had to close earlier due to public holidays.

While the 2017 budget anticipated that R28 billion would be collected as a result of tax policy measures, this didn’t materialise. Personal income tax in particular came under pressure.

“We see a general decline in compliance across all taxes but what is especially worrying are those taxes that are collected on behalf of Sars – the so-called agency taxes. This is Pay-As-You-Earn that is collected by employers on our behalf as well as VAT,” Carolissen said.

Kingon said the decline in compliance was of “deep concern”. It seemed to be driven by perceptions about Sars as well as economic developments. Some people were using employee taxes to enhance cash flow in their businesses.

While Sars would utilise education and service initiatives to address these issues, Kingon said it would also step up enforcement by reviewing the regime of administrative penalties for non-submission of returns.

“Currently, it is only in place insofar as personal income tax is concerned. We need to look at what we are going to do to enforce the submission of returns of VAT and Pay-As-You-Earn and company tax returns.”

“It is unacceptable when you start looking at the number of company returns – and these are legal entities – that are simply ignoring their obligations. We need to enforce that and we need to also work with the various departments within the justice cluster to see how we use their systems because to not pay your Pay-As-You-Earn is a criminal offence.”

With regard to administration efficiencies, Carolissen said the large number of outstanding returns were concerning, while outstanding debt ballooned as a direct result of large business debt. However, Sars was successful in clearing a large number of refunds that were trapped in its credit book, reducing it by 12% over a two-year period.

Finance Minister Nhlanhla Nene said President Cyril Ramaphosa would finalise the terms of reference for the probe into tax administration and governance at Sars “shortly”.

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