SARS wants a new ID system for South Africa
SARS commissioner Edward Kieswetter says that South Africa would benefit from a new unique digital identifier (UID) system, which would close many tax loopholes and reduce corrupt activities all along the revenue chain.
Speaking at the South African Institution of Taxation’s (SAIT’s) annual Tax Indaba on Monday (9 September), the commissioner noted that internationally, revenue services are making a bigger move into investing in the administrative side of taxing, which is yielding results.
However, in South Africa, more still needs to be done, he said, particularly because there are many gaps and opportunities for tax laws to be exploited and abused and for corruption to seep in.
The commissioner pointed to various government platforms being used to process payments as an example. SARS has a system, the UIF has a system, NSFAS, SASSA, and many other government services have systems.
Each platform presents unique opportunities for abuse and corruption—and having a UID and an accompanying card that could be used across all government services would remove many of these risks, he said.
Former finance minister Trevor Manuel—speaking on the same panel—pointed to India’s Aadhaar card as an example of a successful digital system.
Aadhaar is a unique 12-digit identifier that digitally stores the residential, contact, and biometric details of an Indian citizen.
Identities can be authenticated with fingerprints or iris recognition at a machine at designated centres. Once authenticated, things like state subsidies can be transferred directly to a bank account linked with the same Aadhaar number, taking care of effective delivery and correct targeting of an individual.
However, Kieswetter suggested this kind of system could also extend beyond just payments.
Any transaction with the government—whether applying for tenders or having certification such as tax compliance—could be attached to the UID to ensure that the various government branches could know exactly who they were dealing with, leaving less room to hide.
Manuel said that this system was rolled out to India’s 1.4 billion citizens in short order—so getting something done for South Africa’s 60 million population should be even faster.
Kieswetter pointed to the payments platform developed in cooperation with the South African Reserve Bank (SARB)—PayShap—as an example of how far a similar platform could reach locally.
Tackling abuse
Speaking on wider tax compliance, undeclared income is one of the biggest tax gaps identified in the country.
This extends beyond the informal sector—taxis, spaza shops, and the rest of the informal economy—to areas like trusts and other formal markets.
Kieswetter noted that, of the R1.74 trillion collected in tax in the last financial year, R260 billion was recovered through “discreet compliance actions”.
This includes about R100 billion that was drawn in through AI, machine learning and data science techniques which identified things like fraudulent refunds.
There are also big gaps in the incentives side of South Africa’s tax laws—as well as within accounting rules themselves—which are still open to exploitation and abuse by accountants, lawyers, advisors and tax practitioners.
Kieswetter said that in any area where tax laws create gaps, people find a way to turn them into exploitable loopholes—and many of the schemes developed to benefit the vulnerable or disadvantaged invariably end up benefitting those who do not need them.
He used the exploitation of the Employment Tax Incentive (ETI) programme as a prime example of this.
The ETI was introduced in January 2014 to promote employment for young workers by giving employers a tax incentive so they could reduce the cost of hiring young people.
Under the programme, employers are allowed to reduce the amount of Pay-As-You-Earn (PAYE) they pay to SARS while leaving the wage received by the qualifying employees unaffected.
However, what ended up happening was that employers would take the tax benefit and then outsource the training of the employees without them actually doing any productive work. The laws have since been updated to try and close this loophole by changing the definition of an employee.
It’s not just on a large scale. Kieswetter pointed to other smaller problems with incentives. Another example is zero-rating brown bread for VAT.
“As it turns out, the people who eat brown bread are health-conscious people, not poor people. Poor people want to eat white bread,” he said.
The commissioner said that tax laws are blunt instruments and that incentives aren’t always pragmatic. They create complexity in the tax system and end up benefitting those who do not need the advantages.
However, systems that close many of the gaps and loopholes can go a long way in shutting this down, he said.
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