EDITORIAL: Sars’s success sparks hope

Five years ago the South African Revenue Service (Sars) was severely compromised, having been hollowed out by state capture — what the Nugent commission described as a “massive failure of integrity and governance”.

The commission made 16 recommendations aimed at rebuilding Sars. Most of those that fall within Sars’s mandate have been implemented, and where public trust in Sars stood at just 48% in 2018/2019, it is at 65% today.

This improvement is due partly to the large investigations Sars has undertaken and the fraud it continues to uncover — not least its crusade against the “transnational plunder network” of Gold Leaf Tobacco, which the revenue service accuses of short-changing the fiscus by R3bn.

The rebuilding of Sars proves that it’s possible to rehabilitate failing government institutions when the right people are appointed to top positions and are properly supported.

This is why many South Africans breathed a sigh of relief in February when Sars commissioner Edward Kieswetter, who was appointed by President Cyril Ramaphosa in 2019, had his five-year term extended by two more years. Part of his mandate will be to ensure the continuation of the programmes and systems he has put in place to restore the integrity of the tax system.

In essence this has entailed broadening the tax base, improving voluntary tax compliance and fiscal citizenship, and sharpening the institution’s detection and deterrence capabilities.

Taxpayers may grumble about the officiousness of Sars — its failure to adhere to stipulated time frames during disputes, its unjustified reassessments, its denial of legitimate home-office expenses and its incorrect bank account withdrawals — but its ability to up its performance each year has been a very good thing for the fiscus.

On April 2, Sars made the preliminary announcement that it had beaten its revised 2023/2024 revenue target by almost R10bn, despite the stagnant economy, while preventing R101bn in impermissible refunds.

Crucially, Sars’s compliance efforts contributed R294bn to total revenue —  27% (almost R62bn) more than in the previous year. This programme leverages big data, AI and machine learning algorithms to crack down on criminality.

Over the past year, the large business and international unit, wilfully dismantled by former Sars commissioner Tom Moyane, proved its worth by contributing R23bn from 341 cases. The crime syndicate investigations unit contributed another R20bn. In addition, Sars curbed impermissible claims related to the VAT export incentive scheme totalling R92m and completed more than 6,500 customs seizures, raking in R6.6bn.

Sars needs ever more specialised skills and resources to crack the criminal networks that rob the fiscus. It should get whatever it needs. After all, it’s the only government institution that is making money rather than spending it. Judge Dennis Davis has gone so far as to say: “Give Kieswetter R4bn and he’ll turn it into R30bn.”

This is why experts believe that raising tax compliance to close South Africa’s R100bn personal income tax gap (the gap between what is paid and what is owed) is likely to be the least-cost option for improving tax revenue — opposed to, say, raising VAT or instituting a wealth tax.

Of course, the real solution is more rapid growth, as this would allow the tax base to grow faster organically without the need for new or higher taxes. But absent faster growth, improving tax compliance is likely one of the most efficient ways to improve South Africa’s fiscal sustainability.

Either way, as long as Kieswetter and his three very able deputy commissioners are in charge, Sars’s integrity and efficiency give South Africans one less thing to worry about.

Now if the same efficiency could just be brought to bear on sorting out the mess at the master’s office …