The South African Revenue Services (SARS) has released its annual report for 2017/2018.
Collections for the 2017/18 financial year amounted to R1 216.5 billion, which is R843 million or less than 1% below the revised target of R1 217.3 billion.
While this is slightly short of expectations, it was still R72.4 billion or 6.3% more than the previous year and significantly higher than the GDP growth, said acting SARS commissioner Mark Kingon.
In addition to a number of performance metrics, the report also considered how public perceptions of the tax body have changed.
While the revenue collector did not complete a Public Opinion Survey in the 2017/18 financial year (due to the termination of its contract with the previous service provider), it noted that it had other instruments at its disposal that it uses regularly to gauge taxpayer/public perceptions and their service experience.
During the 2017/18 fiscal year, SARS also commissioned another public perception survey conducted by an external service provider (Genex Insights) at the start of the tax filing-season, to gauge perceptions of the SARS brand.
Conclusions/findings from the Genex report were as follows:
- SARS is generally well perceived among both individuals and businesses as a hugely efficient and effective organisation, and certainly more so than other parastatals.
- Among individuals, there is a need for better education around tax deductions, tax returns and tax calculations.
- While there is the odd niggle, perceptions of SARS as an organisation are generally positive, particularly among businesses and tax practitioners.
- Nevertheless, the recent negative media coverage around SARS, the public sector, state-owned enterprises and government, in general, does have a negative influence on the perception of the public.
- Most critically, it calls into question whether the funds which SARS is tasked with collecting are used in a manner which is beneficial for the broader public, or whether they are used for lining the pockets of a select few.
- Concerns around the independence of SARS and the degree of political involvement in the organisation are more often thought to involve the senior management and leadership at SARS, rather than the SARS employee in the branch.
- In addition, since the media are often the first entities to report on these issues, the public has come to rely on the media for information, perceiving the media to be the primary provider of insight into the workings of public sector agencies.
- Businesses, in general, are more open-minded with regard to the media reports and are more likely to believe in the efficacy of SARS than their individual counterparts.
- There was little to no indication that any of the participants had ever considered a tax revolt, and most were of the opinion that the chaos and suffering (particularly of the poor) caused as a result of a tax revolt would likely outweigh the possible, eventual benefits.
“We are in no way saying that the above survey replaces the Public Opinion Survey,” SARS said.
“Procurement processes are at the final stages to ensure that the 2018/19 Public Opinion Survey is done and concluded timeously.”
The questions surrounding a possible tax revolt are especially timely ahead of finance minister Tito Mboweni’s inaugural medium-term budget policy statement (MTBPS) later this month.
During his MTBPS last October, former finance minister Malusi Gigaba cited concerns around the weakening tax compliance and tax morality in South Africa.
“Behavioural responses to tax increases may be larger than anticipated and revenue could perform below expectations even if taxes are hiked,” Gigaba said.
“Compliance concerns are mounting in the context of tax administration challenges and weakening tax morality.”
Economists have previously warned that further tax increases in South Africa, particularly on personal income tax, would likely push tax revenues very close to the top of the Laffer curve. This is the point at which tax revenues are maximised and beyond which tax rate increases will actually result in a decrease in tax revenues.
The Laffer curve was developed by economist Arthur Laffer to illustrate the relationship between tax rates and the amount of tax revenue collected by governments.
It suggests that as tax rates increase from low levels the tax revenues collected will increase.
However, at some point, further tax rate increases will actually lead to lower tax revenues as the disincentive effects of higher taxes begin to dominate.
While Laffer’s primary objective was to illustrate the relationship between taxes and production (i.e. that taxing any economic activity results in less of that economic activity and resultantly lower tax revenues), the Laffer curve also illustrates that higher tax rates result in a greater incentive for tax avoidance and evasion which could also cause tax revenues to fall.
According to Kyle Mandy, Tax Policy leader at PwC, the evidence emanating from the 2017 MTBPS suggests that, in the current environment, South Africa has maximised the tax revenues that it can extract from its citizens and has possibly even gone past that point and is now on the downward slope of the curve.