SARS getting its guns ready

The South African Revenue Service (SARS) is investing aggressively in technology, with it seen as the best way to increase the state’s revenues.

Speaking at a media roundtable, several experts at Deloitte broke down the revenue collection prospects ahead of the 2025 Budget speech.

Finance Minister Enoch Godongwana will deliver the Budget Speech on 19 February 2025, with many wondering how SARS will reach its targets.

The experts at Deloitte said that SARS is investing heavily in technology to help track down extra tax revenues. They added that giving money to SARS will help the National Treasury get extra tax revenue.

The gap between the tax that South Africans should have paid and the amount collected was estimated to be R300 billion, as of July 2024.

Nevertheless, experts noted that the Treasury has benefitted from several blue-sky events recently.

Amidst a Budget deficit in the 2024 Budget, Treasury tapped the South African Reserve Bank’s Gold and Foreign Contingency Reserve Account (GFECRA) to access R150 billion in funding. 

Treasury is also expected to benefit from the creation of the Two-Pot system, which allows South Africans to access parts of their retirement savings at the member’s marginal tax rate.

As of January 2025, SARS processed 2,664,279 applications for tax directives concerning withdrawals, leading to a staggering gross lump sum of R43.42 billion already being paid out.

This is expected to be a significant boost for the government’s coffers, potentially easing the R20 billion deficit raised by Godongwana in the Medium-term Budget Policy Statement.

However, the benefits of GFECRA and the Two-Pot system will not be everlasting, with Treasury needing other measures to raise revenues in the immediate and medium-term future.

Thus, investing to improve SARS’s operations is a surefire bet to improve the nation’s revenues.

Tax changes

However, the experts do not expect that Godongwana will increase the nation’s primary tax sources.

Although an increase in Value Added Tax (VAT) is often seen as an easy way to increase revenues, it has a disproportionate effect on the poorest in society.

This means that an increase in VAT is unlikely.

On the other end of the scale, further taxes on the rich in the country are also unlikely.

National Treasury previously said that it was investigating both a wealth tax on high-net-worth individuals, as well as an increase in personal income tax on high-income earners.

However, Deloitte’s experts said that the nation’s wealthy are already highly taxed, making further increases unlikely.

In addition, SARS already has a team dedicated to the tax affairs of High Net Worth Individuals.

These High Net Worth Individuals often have complex, multi-layered investment structures, both locally and offshore, which makes it harder for the taxman to collect.

Moreover, corporate taxes in South Africa are also near the top of the range at 27%.

Relatively small levy increases could be introduced, with an increase in the Sugar Tax seen as a low-hanging fruit as it is easy to justify.

Moreover, an increase in the General Fuel Levy, Road Accident Fund Levy and Carbon Fuel Levy could also add additional revenue for the state.

However, with a lack of other large tax increases, Treasury investing in improving SARS capabilities seems to be the most likely avenue for improving the state’s revenue.