Budget 2023

Sluggish economy, SARS inefficiencies likely behind revenue shortfall - tax experts


Tax revenue collection by the South African Revenue Service may be R50bn short for the current financial year, and tax experts have suggested this may be because new boss Edward Kieswetter is preoccupied with having to restore capacity at the institution, following the legacy of former commissioner Tom Moyane.

At a breakfast briefing this week, tax experts of audit, accountancy, advisory and tax services firm Mazars shared predictions on the mini budget, due to be announced later this month by Finance Minister Tito Mboweni.

SARS is tasked with collecting R1.422trn for the fiscus. Collections over the past five months are tracking at 37% of the target, at R519bn.

While the budget for tax collections on personal income and profits is around R820bn, collections were tracking 37% at R300 bn in August. Excise duty tax was tracking its R42bn target by 39% with collections at R16.6bn. VAT collections are 36% or at R129bn of the R360bn target. Corporate income tax is at 34% or R78bn of the R229bn target.

Mazars tax partner Graham Molyneux posited that the low tax could collections could be the function of a "sluggish economy" or a lack of efficiency at SARS.

In response Mike Teuchert, national head of taxation services, said that Kieswetter himself is worried that SARS might not reach the target.

VAT refunds

Despite a 1% increase in the VAT rate last year, collections have been disappointing, Teuchert lamented. Part of this is attributed to the legacy of VAT refunds which need to be paid out. The actual refunds made appear to be more than what has been budgeted for, he said.

"I'm not sure if that is just a state of the economy or a legacy from the prior periods," he said.

Tax Partner Bernard Sacks commented that the low collections from VAT could reflect that the economy is "grinding to a halt". Or, alternatively, exports are improving – exporting businesses can claim refunds, which could explain the spike.

At the current rate of tax collections, the shortfall could be R140bn, Teuchert warned. However, he went on to explain that there are usually more tax collections in the latter half of the year than the first half of the year – ultimately there will be a shortfall and the current market consensus is R50bn.

Government has limited options when it comes to funding the shortfall. Its alternatives are to incur more debt – which the country can't afford – or reduce expenditure, which is a strategy government has taken in recent budgets but have not shown outcomes. Teuchert expects Mboweni to provide more insight on how to plug the gap at the mini budget.

Moyane legacy

Referring to comments made by Kieswetter, Teuchert said SARS is facing staffing challenges, as well as financial constraints impacting its ability to collect revenue. "The organisation does not have enough money to reach collection targets," Teuchert said.

Teuchert was among several other industry experts who met with Kieswetter following his first 100 days in office. Kieswetter had engaged with various industry bodies and stakeholders that SARS relies on. Of the engagement Teuchert said Kieswetter was frank that the organisation is not in a good state.

"He spent his first 100 days understanding the status of SARS," Teuchert said, adding: "He has been given a broken organisation."

Of the Moyane legacy, Teuchert said: "The morale is extremely low. There are people who are extremely hurt by what has happened."

Teuchert, however, added that he left the engagement with Kieswetter feeling extremely positive that the organisation could be turned around.

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