ALAN BEESLEY: Reforming funding of Sars should be finance minister’s top priority

The chronic underfunding of the SA Revenue Service (Sars) is an immediate threat to SA’s fiscal stability and must be finance minister Enoch Godongwana’s burning preoccupation in his medium-term budget policy statement (MTBPS) on Wednesday.

As our country’s tax administrator, Sars is tasked with the critical mandate of collecting all tax revenues due to the government, ensuring compliance with tax, customs, excise legislation and facilitating legitimate trade that protects the SA economy. Without proper funding, Sars cannot effectively deliver on this mandate, putting our economy in a state that is most perilous.

International benchmarks highlight the extent of Sars’ underfunding. Based on two widely accepted standards — the cost-to-collection ratio of 1:100 and 0.26% of GDP — Sars’ annual budget should be about R18bn. Yet this year’s allocation is only R12.4bn, leaving the agency underfunded by more than 30%. Such a shortfall severely undermines Sars’ ability to fulfil its duties.

The consequences of this underfunding are two-fold. It hampers Sars’ ability to collect the full tax revenues owed to the government. Given that Sars collects more than 90% of government revenue, it is astounding that the agency is not being adequately resourced. Just recently, Sars informed parliament that years of underfunding had crippled its ability to perform crucial compliance work that gives force and effect to its legal mandate, and in turn has a severely negative effect on the country’s fiscal integrity.

SA’s sluggish economic growth should compel the government to prioritise revenue collection, yet the country’s tax gap — the difference between taxes owed and taxes collected — currently stands at about R800bn (32% under-recovery from total estimated tax liability). To put this into perspective, the UK’s tax gap is 5% and Australia’s is 7%. This gap is not just a fiscal issue; it represents an enormous untapped resource for a country that desperately needs every cent to provide services to ordinary South Africans.

Underfunding also allows the illicit economy to thrive. Illicit trade costs SA R100bn annually in lost tax revenue, according to Sars, while Business Leadership SA (BLSA) estimates that the economy loses R250m every day to illegal activities. The rise of the illicit economy not only drains billions in tax revenue but also stifles economic growth, discourages foreign investment and undermines business confidence.

Sars plays a vital role in combating illicit trade, which also has severe knock-on effects for unemployment and widens the tax gap further. When illicit activities prevail, trust in Sars erodes, incentivising further tax evasion and discouraging voluntary compliance by law-abiding businesses.

It is no coincidence that Sars’ budget was slashed by 12% during the tenure of corruption-accused Tom Moyane, and this reduction has never been made good. This budget cut raises serious questions: was Sars purposefully incapacitated to enable widespread malfeasance? Parliament must interrogate these actions.

Although the agency received a one-off R1bn injection last year, Sars remains critically underfunded. Alarmingly, projections indicate that less money is allocated to Sars in the 2026/27 financial year than in the previous financial year. The funding constraints of Sars are no more evident than in the agency’s headcount, which has fallen by 20% over the past decade.

To quote the late Tito Mboweni when he was SA finance minister: “A well-functioning and efficient Sars is crucial to building a capable state and to government’s fiscal needs being met.” Properly funding Sars is therefore a no-brainer. It will not only help to close the tax gap and increase much-needed revenue flowing to the fiscus, but also help curb illicit trade, protect legitimate businesses and foster economic recovery.

ActionSA understands that the R5.6bn underfunding cannot be remedied overnight. Therefore, we recommend that an additional R2bn be allocated to Sars over the medium-term expenditure framework — the current and next two financial years — to improve revenue collection and clamp down on illicit trade.

ActionSA will table budget amendments, apply public pressure and explore every available parliamentary mechanism to ensure that Sars receives the funding it desperately needs. The survival of our economy depends on decisive action now.

• Beesley, an ActionSA MP, serves on parliament's standing committees on finance, the auditor-general and public accounts.