The tax collection target of R1.422trn is "unrealistic" and "damaging" to the economy, a tax expert Patricia Williams has said.
Williams, tax partner at law firm Bowmans, weighed in on the performance of the SA Revenue Service, ahead of the mini budget to be announced by Finance Minister Tito Mboweni on Wednesday October 30.
Analysts at Momentum Investments project a R50bn shortfall in revenue collections. Fin24 previously reported that the shortfall could be attributed to the poorly performing economy, as well as the limited capacity at SARS resulting in collection inefficiencies.
For the 2018/19 financial year, SARS undershot the revenue target of R1.302 trn by about R14.5bn, having collected R1.287trn.
According to data from Treasury, as at August 2019, SARS had been tracking 37% of the target for 2019/20 with collections at R519bn.
Take numbers in context
"While there is much discussion around SARS' under-performance, there appears to be insufficient attention on the actual context of these numbers," Williams said.
"Relative to economic growth, SARS' performance in 2018/19 appears good," she said.
Williams said it is expected for tax collections to track the financial performance of the economy. She questioned why in 2018/19, tax collections were set at "approximately double" a realistic GDP growth.
She said the similar problem is happening in 2019/20 year - the tax collection target of R1.422trn is over 10% higher than the actual tax raised in 2018/19, she said.
Williams said that it might be expected that revenue collections should improve, now that SARS is under the helm of a new commissioner, Edward Kieswetter. But she also noted that SARS' collections, under the leadership of Tom Moyane in previous years, were overstated.
"The main culprit in this respect was the systemic issue of delayed refunds, on which the Tax Ombud issued a report," Williams said.
These views were echoed at a pre-budget media briefing hosted by Mazars. Mike Teuchert, national head of tax services, told journalists that SARS VAT refunds appear to be more than that which has been budgeted for.
Rein in spending
Williams also said that government spending is equally important in fiscal policy. Spending cannot simply be increased, expecting taxpayers to be "bottomless pits" of available funding, she said. SARS also cannot expect taxpayers to voluntarily comply with tax laws, without considering the way in which government revenues are spent, she added.
"It is unsustainable to keep spending funds that have not been earned, based on tax collection targets that do not reflect current economic or tax industry realities," she said.
Williams suggested that the unattainable revenue targets forced SARS to apply tax laws aggressively, such as penalising taxpayers. "Constantly setting excessive targets for SARS is demotivating and drives negative behaviours," she said.
Williams said that a downward revision on the tax revenue collection for 2019/20 is anticipated. "Taxpayers should be hoping for more realistic tax collection targets and associated restrictions on government spending in [the National] Budget 2020," she said.