Sars sounds alarm on tax take as corporate collections plummet

Tax collections fell R22bn short of February’s budget estimates for the first five months of the current fiscal year, as corporate income taxes dropped and VAT refunds rose. But while economists expect a substantial revenue shortfall this year, the SA Revenue Service (Sars) cautions it is still too early to project the outcome.

Sars deputy commissioner Johnstone Makhubu said on Monday end-August figures show revenues growing at 2.6% year on year, against the 6% budgeted in February. The past two months have pulled up collections, with the August gap below the R29bn at end-June.

In the run-up to the medium-term budget statement, which the Treasury on Monday confirmed for November 1, economists expect a shortfall in government revenue of anything from R20bn to R80bn for the current year, with the monthly data suggesting a full-year shortfall of about R50bn.

That is expected to put huge pressure on finance minister Enoch Godongwana as spending pressures are rising. The Treasury, which has instructed departments to freeze new hiring and cut spending on infrastructure, travel and events, met the cabinet at the weekend to spell out the tough decisions needed to tackle SA’s rapidly deteriorating public finances.

Widening gap

With the gap between revenue and spending widening, the government’s deficit and debt ratios in the coming years are now expected to be much worse than Godongwana projected in February. Investors’ growing concern about SA’s debt trajectory have driven up SA’s cost of borrowing. IMF first deputy MD Gita Gopinath warned recently the cost of servicing government debt could climb to more than twice the health budget.

On the sidelines of the annual Tax Indaba yesterday, Makhubu said care should be taken with extrapolating from the latest monthly revenue figures to the full year outcome. But Sars is closely watching collections from the mining and manufacturing sectors, as well as VAT refunds, which in February were expected to stabilise after last year’s strong increase. VAT refunds have been growing at 14.3% in the first five months of the fiscal year to August.

The continued high level of VAT refunds reflects the impact of inflation on companies’ expenses and therefore their VAT refund claims. It is also the result of the pickup in investment spending, which means higher refund claims on import VAT, Makhuba said.

The latest GDP figures show significant growth in investment spending, much of which economists believe is due to solar rooftop and other backup power installations, amid unprecedented levels of load- shedding. Though this has supported economic growth, it is also weighing on VAT revenue collections, as companies claim back the VAT on new machinery and equipment spending.

Load-shedding has also eroded revenue in the current fiscal year. Makhubu said Sars had estimated in April that load- shedding would slash tax collections by R60bn and this is now materialising.

Makhubu, appointed as one of three deputy commissioners from September 1, emphasised the tax authority is focused on improving compliance levels whatever happens in the economy. Sars’ own compliance efforts contributed R82bn for the fiscal year to end-August, 22% growth year on year.

Sars commissioned work on third-party data to identify individuals’ offshore holdings. More than 2,000 with more than R10m flowing in their accounts were not in the tax base.

Improving capacity

“Finding it is one thing; moving through the value chain to collect it is another,” Makhubu said. But Sars’ capacity and capability is improving and he urged taxpayers to use the voluntary disclosure programme to regularise their tax affairs.

On VAT refunds he said Sars is watching carefully for VAT refund fraud, especially in sectors such as second-hand gold and individuals trying to register as VAT vendors to claim refunds and syndicates wanting to exploit the system for VAT refunds. But Sars is also aware that a number of businesses are concerned about its processing times for VAT refunds and is addressing this. “We understand the cash flow implications. A big chunk are paid out within 21 days but the focus is on those that fall outside that,” he said.

The expected large revenue shortfall for the current year comes after two years of surpluses, with the global commodities boom helping to boost 2022/23 revenue collections to R1.6-trillion, more than R90bn higher than original budget projections. Corporate income taxes contributed more than 20%.

joffeh@businesslive.co.za