Edward Kieswetter’s R300 billion headache
The gap between the tax that South Africans should pay and the amount collected is estimated to be R300 billion.
This gap remains a challenge for South African Revenue Service (SARS) Commissioner Edward Kieswetter, who has prioritised increasing compliance.
In February 2024, SARS announced that it had collected R1.74 trillion in net revenue, exceeding its provisional revenue target by almost R10 billion.
The SARS Commissioner explained that this strong performance was partly a result of improved compliance.
“A focused compliance programme and improved taxpayer and trader compliance underpin fiscal sustainability and consolidation,” Kieswetter said.
“Taxpayers must meet their obligations to pay their taxes. Those who fail to comply place an unfair burden on taxpayers and must face the consequences of breaking the law.”
Kieswetter highlighted that SARS’s strategic intent is to promote voluntary compliance and fiscal citizenship.
“This forms the basis of the compliance initiatives implemented by SARS over recent years, which have contributed R210.3 billion year to date,” he said.
These compliance efforts represent an extraction rate of 15.2%, up from 12.4% in the previous year, showing year-on-year growth of R43.4 billion.
Cash receipts emanating from these efforts amount to R124.7 billion, up from R105.1 billion in the previous year.
“Leakage prevention measures delivered R85.6 billion, up from R61.8 billion in the previous year,” Kieswetter said.
He added that due to strained economic growth, SARS must work harder to ensure that all taxpayers remain compliant and current with their taxes.
“SARS is implementing additional measures to sustain and even increase compliance revenue,” he said.
Despite the effectiveness of the South African Revenue Service’s to improve compliance, there is still a big tax gap in South Africa.
South Africa’s net tax gap, the difference between taxes that should theoretically be collected in terms of the law and taxes that are collected, is more than R300 billion.
“While there will always be a tax gap in any country, that level of tax gap (15%+) is considered large,” PwC SA tax controversy and dispute resolution partner Elle-Sarah Rossato said.
For context, the estimated net tax gap in the United Kingdom is under 5%, and in Australia, it is 7%.
Rossato said halving the tax gap in South Africa would positively impact the country’s fiscal metrics.
A significant reduction in the R300 billion tax gap, which is similar in size to the main budget deficit, could free up space for tax cuts.
“Closing the tax gap is a core responsibility of SARS, and they must be given the resources to invest in people and technology that would help them do so.”
Rossato said a prominent factor enabling SARS to boost its revenue collection has been its drive to improve compliance with a greater focus on deploying new technologies.
To transform SARS into a modern, technology-driven tax authority, greater emphasis must be placed on its tech and artificial intelligence (AI) capabilities.
The revenue authority is taking this seriously, considering the implementation of its Compliance Programme and Tax Administration 3.0.
Fraud and the illicit economy are among SARS’s key concerns. Greater tech adoption will help the organisation be better equipped to combat non-compliant taxpayers.
PwC SA tax controversy and dispute resolution associate director Jadyne Devnarain said SARS uses data, AI and machine learning algorithms to counter non-compliance.
“For SARS, a key focus is curbing illegitimate refunds. These systems aim to prevent refunds claimed fraudulently,” she explained.
“SARS has recently reported that the use of these systems contributed to it preventing the outflow of R101 billion of impermissible refunds in the last financial year.”
“That said, there is still much work to be done for SARS to fulfil the ambition of becoming a modern and technology-driven tax authority.”
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