Tax season opens amid challenges
Low economic growth and poor tax compliance threaten revenue
The tax season opens on Monday, with the tax authority facing a huge challenge in meeting ambitious revenue targets in the context of lower than anticipated economic growth and poor tax compliance.
Finance Minister Nhanhla Nene and South African Revenue Service (SARS) acting commissioner Mark Kingon will host an event on Monday to mark the opening of the tax season and are likely to highlight the challenges ahead.
Despite these challenges, Kingon has ambitions of raising tax revenue by 20% by tackling low tax compliance and strengthening SARS’s capacity to deal with its large business clients, who account for about two thirds of corporate tax revenue and make a significant contribution to VAT and PAYE. This capacity deteriorated after former SARS commissioner Tom Moyane demolished SARS’s large business centre.
Achieving a 20% growth would be a sharp reversal of the entrenched trend, which saw revenue collections fall short of budget targets in each of the past four fiscal years, with last year’s shortfall amounting to R48.2bn.
PricewaterhouseCoopers tax policy leader Kyle Mandy said on Friday it was too early to say whether Kingon was making an impact on revenue collection methods and on trends. He said the revenue figures for May released by Treasury on Friday "were not looking too bad", with VAT on track. However, personal income tax was a concern as it was lagging behind projected growth by a significant margin.
"If things do not improve on the personal income tax front, we will be looking at a sizeable shortfall of R8bn or R9bn," he said. Corporate income tax performance could only be assessed at end-June.
Nene said earlier in 2018 that tax compliance was one of the key determinants of the revenue performance of a tax authority.
"SARS has seen a deterioration in compliance as indicated by the overall growth in outstanding returns across all tax types. More concerning, though, is the increasing tendency of business to withhold taxes such as VAT and PAYE collected on behalf of SARS. The SARS outstanding returns campaign will be boosted this year to bring this matter under control," he said.
Revenue targets could also be jeopardised by low economic growth, which so far has not met up to the expectations of the February budget. Nene has warned that the risks to growth remain high. Growth contracted by a shocking 2.2% in the first quarter, compared to a market consensus of 0.5%. This called for revisions to projections.
The budget projected growth of 1.5% for this year, and it was partly on this basis that the target for tax revenue was set at R1.345-trillion, 10.5% higher than the revised estimate of R1.217-trillion for 2017-18. The one percentage point hike in the VAT rate, which is expected to raise an additional R22.9bn, will make a significant contribution to meeting this target.
The actual preliminary outcome for 2017-18 was R1.216-trillion, representing a growth of 6.3% over the 2016-17 figure.
Revenue collection could also be negatively affected if the annual inflation rate turns out to be lower than the 5.3% projected in the budget.
So far this year the inflation rate has fallen below that number to 3.8% in March, 4.5% in April and 4.4% in May.
The tax season for individual tax payers and for provisional tax payers who file their returns at a SARS branch has been reduced by three weeks this year and will run from July 1 to October 31, while provisional taxpayers who use e-filing have until January 31 to file.
The deadline for manual submissions is September 21.
Kingon says a shorter filing season will allow more time for SARS, tax payers and the tax fraternity to deal with return verifications before the December holiday break.