Global Courant 2023-04-20 11:40:38
The South African Revenue Service (SARS) says that to cover the country’s tax base 100%, every single economic activity must be plugged in and tracked – a monumental challenge for the tax department.
During a standing finance committee op April 19Tax Commissioner Edward Kieswetter said South Africa’s tax gap – the potential revenue that goes uncollected – is easily between R200 billion and R300 billion.
This is the amount that SARS does not collect because it either does not have all economic activities on its register or not all taxpayers are compliant.
He added that despite the various possibilities of obtaining information about people’s economic activities, SARS still has a limited capacity, especially when it comes to the informal market.
Taxi drivers, spa shop owners or home retailers in rural communities need digital identities to meet their tax obligations, Kieswetter said. He added that taxing this sector of the economy is a nightmare.
Due to its informal nature, the exact size of South Africa’s formal economy is difficult to place. Researchers have estimated that the informal economy employs about 4.5 million people, and Stats SA set its GDP contribution at about 6% in 2017 (R300 billion at the time).
Kieswetter said the IRS as it stands has taken a host of initiatives to strengthen data collection, including:
Collect data from property access, deeds and vehicle registers, then cross-check with the tax register. Having an automatic exchange of information between foreign jurisdictions to assess South African economic activity abroad.
“Our main concern is those who try to stay under the radar, who engage in economic activities but do not register. And we also have ghost registrations, where people register employees purely to defraud the tax authorities,” says Kieswetter.
To ensure that smaller traders are registered, SARS has set up a supervisory body specifically to deal with tax matters for small to medium-sized enterprises (SMEs).
He added that a lack of tax compliance and record-keeping also stems from the authority’s limited footprint, with pensioners or retirees having to travel miles to settle outstanding fines.
SARS has followed a consistent forward trajectory, with tax collections for 2022/23 totaling R1.69 trillion, beating estimates.
According to the National Treasury, the improvement in revenues is largely due to higher corporate and personal income tax collections and customs duties.
However, legal experts from Tax Consulting SA argue that the tax authorities are still primarily targeting a small pool of taxpayers.
The tax office said the government’s heavy reliance on income tax remains a major pain point, as it has been for years, and this problem is exacerbated by a shrinking tax base.
The concept of a shrinking tax base, despite the support of outside companies, has been denied by SARS itself. According to Kieswetter, the country’s tax base will add more than 1 million new registrations this year.
According to the SARS commissioner, the tax base will be expanded, although not all new registrants will be taxpayers.
Kieswetter said about R5 billion had been added to the revenue from new registrations.
He also argued that the media had exaggerated the problem of the shrinking tax base and emigration, with only about 6,000 taxpayers leaving the country in the past year, and only a small fraction of these were high earners, he said.
Read: SARS comes after luxury vehicles in South Africa
