When Moody’s affirmed SA’s investment grade rating and upgraded the outlook from negative to stable recently, one of the drivers was that the change in SA’s political leadership had made it possible to start gradually rebuilding the institutions that had been eroded by the Zuma administration. The South African Revenue Service (SARS) was specifically mentioned, with the Moody’s update coming just days after SARS commissioner Tom Moyane was suspended at last.
Last week’s announcement of results for the latest tax year by SARS and Finance Minister Nhlanhla Nene signalled that the process of rebuilding the tax authority and repairing the immense damage that the Moyane era has done to its credibility and effectiveness has begun.
It is hard to underestimate how important that is: SARS collects more than 90% of the revenue the government relies on to fund its spending envelope. The fiscal framework has been under enormous pressure due to revenue shortfalls in recent years, with the shortfall hitting close to R50bn in the latest year. And while the economy is part of the reason, the erosion of SARS as an institution may be an even bigger part of the problem. That will surely make fixing the institution a priority for the Ramaphosa administration. But the challenges are immense.
It is far better for SARS to play fair with taxpayers and be honest about the challenges it faces than fiddle with the figures to meet targets. There certainly is the beginning of a new era of transparency and fairness
There was at least no evidence of Moyane or his henchmen at last week’s media briefing on the results, and with Nene and acting commissioner Mark Kingon in charge, the new era was clearly apparent in the transparency and the media-friendly atmosphere that prevailed. SARS missed the revised February budget target by a few hundred million, but that is no bad thing. It seems that the tax authority is now catching up on paying out the refunds it owes taxpayers, instead of holding on to them in an effort to meet targets as it has done in the past.
It is far better for SARS to play fair with taxpayers and be honest about the challenges it faces than fiddle with the figures to meet targets. There certainly is the beginning of a new era of transparency and fairness.
However, Moyane is not yet gone. Until he is, new permanent leadership at SARS cannot be appointed and it’s hard to start rebuilding the skills set and human capital that was purged or lost in the Moyane era. President Cyril Ramaphosa needs to push ahead with the disciplinary process and resolve the Moyane problem as soon as possible. He also needs to appoint the promised commission of inquiry into SARS so the rot can be cleaned out and possible criminal charges laid. Equally, Moyane’s obsessive and hugely damaging pursuit of those involved in the so-called rogue unit must finally be terminated.
Fortunately, SARS is clearly not waiting to start on the road to rebuilding its damaged credibility and its relationship with taxpayers. Concerns have long been expressed about the erosion of tax morality and compliance. SARS officials detailed some of the trouble last week, reporting "a deterioration in compliance as indicated by the overall growth in outstanding returns across all taxes" and raising particular concerns about a growing tendency by businesses to withhold taxes such as value-added tax and PAYE collected on behalf of SARS.
Much needs to be done to rebuild the fabric of SARS and the culture of compliance that the tax authority so carefully built in the earlier years of democracy, and particularly from the late 1990s after SARS was established in its present form. It took much time and effort to instil the tax morality and compliance culture that has been so badly dented by the capture of the state and its institutions in recent years; rebuilding it will not be easy.
It may even be harder this time around: in the early to late 2000s the tax authority had the advantage that the economy was buoyant and tax rates for individuals and companies were being cut as fiscal space was created by the prudent policies of the democratic government. Now, the leadership has to contend with weak economic growth and a series of tax hikes the government has had to implement to close the gaping fiscal hole and fund new spending priorities.
The leadership in the government and in SARS have clearly set out on the road to repairing the tax authority and rebuilding its credibility and the culture of compliance among taxpayers. That is welcome. But crucially, too, the government needs to get its fiscal house in order so taxpayers aren’t endlessly asked to cough up more. That will surely also incline them to be more compliant.