Municipalities eye taxpayer refunds to recover debt
Proposal that debtors be targeted meets resistance
Local government structures want tax law to be amended, enabling them to dip into taxpayer refunds and recover debt that is owed.
But the National Treasury, which sets tax policy, said a discussion on revenue collection and credit control was necessary first — a discussion that it would be happy to have with the South African Local Government Association.
Ismail Momoniat, head of tax and financial-sector policy in the National Treasury, said taxpayer information was confidential.
"Municipalities will not know the tax affairs of any taxpayer. There is no way that the South African Revenue Service (SARS) can provide them with such information. Generally tax is not the first instrument to use to collect bills."
The proposal was mooted last week during the local government week in Parliament as a panacea to SA’s rising municipal debt.
Municipalities are owed more than R138bn by government departments, businesses and households. It is not clear which debtors may be targeted if the proposal succeeds.
A statement from Parliament last week said a recommendation was "that the legislative sector must look into amending the Tax Administration Act to allow deductions of municipal debts before refunds are made by SARS".
Local government delegates also called for the appointment of district debt collection agencies to assist municipalities in collecting debts.
Minister of Cooperative Governance and Traditional Affairs Zweli Mkhize would deliver his budget vote on Tuesday and was expected to provide strategies to recover municipal debt, a departmental spokesman said.
Nazrien Kader, head of tax at Deloitte, said it was vital to have controls in place to ensure that claims from municipalities were valid and they were against the correct taxpayer. A mechanism for recourse for the taxpayer, in the case of erroneous targeting, was also key.
"With all the billing problems at local government level this does not inspire confidence," she said, unless a court order was obtained. The tax-refund process could be delayed as SARS would have to verify amounts owed by a taxpayer to various municipalities.
Last week Finance Minister Nhlanhla Nene told Parliament that more than 40% of municipalities had run out of cash that was needed to continue with service delivery. There are 278 municipalities, according to Statistics SA.