Global Courant 2023-04-30 20:00:24
South Africa’s fiscal buoyancy has stabilized after years of futility during the State Capture era.
The South African Revenue Service (SARS) used to report a value of less than one. However, it has maintained higher levels of efficiency in recent years, SARS Commissioner Edward Kieswetter said.
The National Treasury said fiscal buoyancy refers to the relationship between total tax revenue and economic growth.
This measure includes the effects of policy changes on earnings. A value above one means that revenues are growing faster than the economy; a value of less than 1 means they are growing below the growth rate of GDP.
Private banking group Investec says the tax authorities have become more efficient at collecting taxes. If the country can stay above one for the next three to five years, the government’s financial books will balance out.
This will eliminate the need to raise individual or corporate tax rates, Investec said.
Kieswetter said this improved performance is a direct result of better trained employees and the use of new types of investigative mechanisms that ensure tax compliance.
“The improvement in SARS administrative efficiency becomes all the more important as the electricity, rail and logistics crisis impacts tax revenues as economic growth slows,” said Investec Treasury Economist Tertia Jacobs.
SARS improvement has become even more important given the current electricity, logistics and rail crisis, she added.
SARS crackdown on the wealthy
But to put on a good show, the IRS needs its ponies.
To that end, SARS hunts the wealthy and powerful who use “smart accounting tactics” to evade taxes.
Based on recent Supreme Court rulings and the findings of the Zondo Commission, SARS has developed the use of data science, technology and automotive to enable convictions.
“Last year we identified 26,000 people who earned more than R1 million and were not registered for tax. They are contacted, a risk profile is created and they are registered,” says Kieswetter.
Investec noted that through SARS’s research and enhanced tax registration campaigns, the taxpayer added 1.5 million individuals to the tax base in fiscal year 2022, worth an estimated R6 billion in tax revenue.
Targeting wealthy South Africans, even those abroad, has become a more important target for the tax authorities. It uses every source at its disposal to make sure it tracks down unexplained wealth – and even international sources, such as the Panama Papers, help with this.
“Given their newfound love of research, don’t be surprised to see more SARS officials visiting Mauritius on business,” said Investec.
To identify companies that use the system unfairly and erode the tax base, SARS takes a particularly strong interest in exotic structurings or non-commercial lending.
shortcomings
But the IRS’ newfound enthusiasm for sniffing out taxes owed is not without flaws.
Emigration and financial flight are major problems for businesses and South Africa as a whole. It has been argued that if the taxpayer gets too aggressive in their collections, those with wealth are likely to look elsewhere.
SARS noted that more than 6,000 taxpayers left the country in 2022. While Kieswetter downplayed this by saying the drop in revenue was minimal, external reports point to a long-term trend of wealth leaving the country.
The increased scrutiny capacity of the tax authorities is also wasted on one of South Africa’s largest sectors – the informal sector – which often operates outside the prying eyes of the taxpayer.
According to Kieswetter, SARS leaves more than R60 billion on the table in this area, which he says is a “nightmare” to navigate.
Another possible blow to the tax collection efforts is Kieswetter himself: after several years as head of the tax office, the commissioner who has effectively changed tax collection in South Africa will step down in May next year.
The Commissioner’s role is essential for a tax agency like SARS to be successful. The taxpayer’s checkered history has proven that the wrong person in the position can do untold damage.
Investec said the Commissioner following suit should take the lead in tailoring SARS to a modern and efficient institution.
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