Withholding tax would aggravate SA’s situation – Sars boss

Sars head discusses budget expectations, taxpayer pressure, ‘gatvol’ South Africans, a flawed framework, tax incentives for renewables and more.

Finance Minister Enoch Godongwana will be delivering his 2023 budget to parliament in two weeks’ time, on 22 February. He has set a revenue target of R1.68 trillion for the South African Revenue Service (Sars) to collect.

However, high levels of load shedding have had a significant impact on economic activities. Many companies have been crippled, leading to high levels of unemployment and emigration.

The revenue service expects this to have a material impact on its ability to deliver on the target.

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Sars commissioner Edward Kieswetter downplays the role of emigration, but says people tend to be ultra-conservative during a time of crisis. They may be tempted to withhold their tax, increasing Sars’s debt book “disproportionally” and making it harder to collect tax revenue.

Despite these risks to the fiscus, Kieswetter believes there is little room for the minister to raise tax rates.

The trend is rather to follow the example of the Organisation for Economic Cooperation and Development (OECD) in lowering tax rates, he said during a PSG Think Big webinar.

The corporate income tax rate in South Africa was lowered from 28% to 27% a year ago, but it remains quite a tax-expensive country in international terms. OECD countries have a statutory rate of 23.6%.

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Kieswetter also referred to the normal noise in the run-up to the budget about the introduction of a wealth tax.

However, the “compliance dividend” – tax that should be collected but previously escaped Sars’s net – reduces the need or pressure to tweak tax rates.

“Our collective mindset must be to look at improving our administrative competencies,” he says, referring to Sars’s efficiency in collecting taxes.

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Tax revolt concerns?

Kieswetter was pressed on the issue of a potential tax revolt in SA, given the lack of accountability in the way public money is wasted and the continuing downward spiral in service delivery.

“Any contribution to furthering the lack of law and order is part of the problem and not the solution,” he says, adding that tax revenue protects the most vulnerable in society against abject poverty.

Wealthy people will buy the services they need themselves, he said – acknowledging the argument that this amounts to double taxation for those who want proper education, medical care and safety.

“That is why we are in a democracy … every fundamental change in SA has not come about because of governments, but because of citizens understanding their activist role.”

Those who believe that withholding taxes is the best response will aggravate the situation.

“Let’s get off our seats and be activists to work towards a just society. If this government does not deliver, they should not be in power.

“It is our democratic principles – not government’s – that will ultimately deliver us the SA that we want.”

The ‘gatvol’ factor

Kieswetter accepts that the majority of South Africans are “disenchanted” – high up on the “gatvol factor” – with the current state of affairs.

“Most in our face is the inordinate disruption of social and economic activities brought about by load shedding.” People are tired of excuses and the lack of service delivery.

When asked about the political will to change the material conditions of South Africans, he said it is less about political will and more about competence.

As a CEO of listed and unlisted private companies, he experienced a “strong bias for action” in times of crisis. In government the Public Finance Management Act and certain regulations, despite their intent, have created inefficient procurement processes and inefficient recruitment practices. This delays things, extending a process that should take a day or two into months. Literally.

Don’t regulate – liberate and incentivise

“You are constrained by a framework that has been designed to regulate and not to liberate,” he says. “It has been designed to constrain rather than to free up resources.”

Despite grandiose legislation and regulations, billions were “literally stolen by political elites” working and colluding with the private sector to defraud the fiscus during the pandemic.

On the topic of legislation, Kieswetter notes that the last amendment in respect of tax incentives for renewable energy investments was made in 2016.

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Nobody at that time could imagine the extent to which energy supply would regress, and what other instruments could be engaged to respond to the crisis.

He says he has engaged with National Treasury – the policy maker – to review what additional provisions can be made to provide relief for South Africans who are spending huge amounts of money to become independent of government’s energy monopoly.

This article originally appeared on Moneyweb and was republished with permission.
Read the original article here.