Toxic cocktail of woes for taxman
Lockdown, lack of resources, tax revolt add up to a nightmare
The commissioner of the SA Revenue Service (Sars), Edward Kieswetter, says it will take years to come to grips with the illicit economy that exploded during the lockdown due to the bans on sales of tobacco and alcohol.
“These criminals have just become more emboldened and more deeply embedded in society, and that is going to take years for us to deal with.”
Kieswetter told parliament recently that Sars needs additional resources or “we are fighting a losing battle” against tax fraud.
To have a fighting chance against an illicit economy boosted by the bans, Sars needs to step up its investment in technology and data significantly, he says. “No modern tax authority will survive if they don't transform themselves to make better use of technology, big data and artificial intelligence.”
He says he understands the health reasons for the lockdown bans but does not want to get into a debate about their merits.
“However, there is a definite consequence of the decision that impacts on my work. Because we know that during this time when alcohol was banned, the sale of alcohol did not stop. The sale of cigarettes did not stop. It simply went underground.”
He says it will take years to eradicate those elements of the illicit economy that “thrived as a result of the bans”.
“Because they've now established a market. People who were not aware of illicit cigarettes before, who went like normal people to the garage or to the supermarket to buy cigarettes, they've started finding out where they can get cigarettes. They've now learnt about alternative suppliers.”
He says it is not just Sars that is struggling to deal with the consequences but the National Prosecuting Authority, the Special Investigating Unit and the Hawks as well.
“All of our work has just become so much harder because of this.”
He says Sars was consulted and didn't support the bans.
“But the decisions were made by the [National Coronavirus] Command Council [NCCC] and cabinet. We were not part of that process.”
Was he consulted about the tax implications?
“I did not wait to be consulted. I continuously alerted the national joint operations committee, a forum of directors-general, as well as messaging to the NCCC the state of revenue, and then left it up to them to make a decision.”
Were they adequately warned about the consequences for revenue collection of the bans?
"'Adequately warned' is a loaded statement. Were they aware? Yes, we made them aware.”
That billions in revenue would be lost to the state?
“We report our revenue performance regularly to the National Treasury, and during this time we stepped up our reporting to make more of the decision-makers aware. When they make their decisions they have to understand that there are trade-offs.”
Kieswetter says it is not his job to warn politicians about the consequences of their decisions.
“I merely say, 'this is the revenue performance, these are the reasons why we are underperforming'. Included in that I will talk about job losses, businesses applying for business rescue, liquidations. And then also talk specifically about revenue performance as a result of lost excise duties, pay-as-you-earn [PAYE], VAT and other taxes.
“My engagement is not to evaluate the decisions government makes. My engagement is to say, 'given the decisions you have made, here are some of the consequences'.”
The excise on alcohol was down R7bn and on tobacco R3bn during the bans, with domestic VAT down R 1.7bn
The total direct impact was a negative R12bn with the full impact on other taxes such as PAYE and corporate income tax not yet fully known.
Another consequence of the lockdown bans will be further “significant” erosion of the tax base, already harmed by emigration, as a result of businesses closing down and jobs being lost.
Kieswetter says additional resources for Sars to beef up its investigative capacity are “a national imperative”.
“This is the one organ of state that brings in revenue, whereas all of the other national entities consume revenue. The effective functioning of the state and therefore the wellbeing of our democracy is centrally and integrally linked to the success of Sars.”
He concedes that improving its investigative capacity is also about improving the still-battered image of Sars, which became an instrument of state capture under his predecessor, Tom Moyane.
This is why he is struggling to recruit the necessary skills, he says.
“I don't think Sars has returned to when it was perceived as an employer of choice.
“We have between 600 and 700 critical positions we have to fill if we really want to stabilise and turn this ship around. Investment in data and tech will give us the tools to detect noncompliance. But we need the investigative and auditing skills to deal with this.”
Although there's “comfortably” between R150bn and R200bn to be recovered from “low-hanging fruit” — tax offenders who are easier to nail and whose ranks have been considerably swollen by politically connected “covidpreneurs” — he understands the need to prioritise the biggest offenders and go after them.
“The challenge you have is that the biggest offenders with the most complex schemes and arrangements require us to have the highest level of capability.
“That's where we need to invest. We don't have enough criminal investigators, forensic investigators, transfer-pricing specialists and specialised customs officers at our borders.”
Fixing Sars's investigative capacity may be easier than stopping the decline in tax morality, which, along with corruption, is costing SA more than R100bn a year, says Dennis Davis, chair of the Davis Tax Committee.
Kieswetter prefers to talk about “tax avoidance” rather than “tax revolt”, but acknowledges it is getting worse.
“As long as taxpayers feel they're not getting goods and services in return for the taxes they pay there is a limit as to how much Sars can do about it,” he says.
“The quality of spend in government is integrally linked to my ability to collect taxes. There is a direct correlation between tax avoidance and declining confidence in the social contract the public perceives themselves to have with the state.”
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