SARS is coming after these wealthy taxpayers
South Africa’s tax buoyancy has stabilised following years of being futile during the State Capture era.
The South African Revenue Service (SARS) used to report a value below one. However, it has sustained a higher level of efficiency in recent years, said the commissioner of SARS, Edward Kieswetter.
The National Treasury said that tax buoyancy refers to the relationship between total tax revenue collections and economic growth.
This measure includes the effects of policy changes on revenue. A value above one means that revenues are growing faster than the economy; a value below 1 means they are growing below the rate of GDP growth.
Private banking group Investec says that the tax authority has become more efficient in collecting taxes. If the country can keep buoyancy above one for the next three to five years – the government’s financial books will begin to balance.
This will remove the need to increase individual or corporate tax rates, Investec said.
Kieswetter said that this improved performance is a direct result of better-skilled employees as well as employing new types of investigative mechanisms ensuring tax compliance.
“The improvement in SARS administrative efficiencies becomes all the more important as the electricity, rail and logistics crisis impacts tax receipts as the economic growth slows,” said Investec Treasury Economist Tertia Jacobs.
The improvement of SARS has become even more important given the current electricity, logistics and rail crisis, she added.
SARS crackdown on the wealthy
However, to put on a good show, the revenue service needs its ponies.
To this end, SARS is hunting down wealthy and powerful people who use ‘clever accounting tactics’ to circumvent taxes.
Based on recent High Court rulings and the Zondo Commission findings, SARS has been developing its use of data science, technology and automotive to enable convictions.
“Last year, we identified 26,000 people who generated more than R1 million who were not registered for tax. They are being contacted, risk-profiled, and registered,” Kieswetter said.
Investec noted that through SARS’ sleuthing and beefed-up tax registration campaigns, the taxman added 1.5 million individuals to the tax base in the 2022 financial year, worth an estimated R6 billion in tax revenue.
Targeting wealthy South Africans, even those abroad, has become a more important pursuit for the tax authority. It is using every source at its disposal to ensure it tracks unexplained wealth – and even international sources, like the Panama Papers, are aiding in this.
“Given their rekindled love of investigation, don’t be surprised to see more SARS officials frequenting Mauritius for business,” said Investec.
To identify companies that are working the system unfairly and eroding the tax base, SARS is taking a particularly keen interest in exotic structuring or loans with no commercial rationale.
Shortfalls
But the revenue service’s new zest for sniffing out owed taxes isn’t without its shortfalls.
Emigration and financial flight are major problems for businesses and South Africa as a whole. It has been argued that if the taxman becomes too aggressive in its collections, those with wealth are likely to look elsewhere.
SARS noted that over 6,000 taxpayers left the country in 2022. While Kieswetter has downplayed this, saying that the revenue knock was minimal, external reports point to a long-term trend of wealth leaving the country.
The revenue service’s beefed-up auditing capacity is also wasted on one of South Africa’s biggest sectors – the informal sector – which often trades outside the prying eyes of the taxman.
According to Kieswetter, SARS is leaving over R60 billion on the table in this area, which he said is a “nightmare” to navigate.
Another potential blow to the revenue service’s collection efforts is Kieswetter himself: after several years as the head of the revenue service, the commissioner who has effectively turned tax collection around in South Africa is set to step down in May next year.
The role of the commissioner is vital for a revenue service like SARS to be successful. The taxman’s checkered history has proven that the wrong person in the position can do untold damage.
Investec said that the commissioner who follows suit needs to take up the reigns of tuning SARS into a modern and efficient institution.
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