Has the SA Revenue Service (Sars) misled the public on revenue collection achievements?

After the 2016 budget, Sars commissioner Tom Moyane announced that it had collected R1trillion for the first time. Moyane and his team and spokesmen implied that this was thanks to their “restructuring” plan.

Yet the 2017 budget showed that tax collection was expected to fall R30bn short of the target. Finance minister Pravin Gordhan suggested that weaknesses at Sars may have played a role, though Moyane and a senior Sars manager blamed the shortfall on “the economy”.

Given the importance of revenue collection for the stability of our public finances and the state’s ability to deliver on its promises, it is important to know whether these claims are correct.

Can Sars have its cake (take credit for collecting R1trillion) and eat it (blame undercollection on low economic growth)? The short answer is no. Higher revenue collection in one year cannot be attributed to institutional changes.

Revenue collection is a function of four main factors: domestic economic activity, tax instruments & rates, taxpayer compliance and effective collection. Changes in the structure of the collector are unlikely to make a big positive difference to the amount collected, because the amount that can be collected is limited by economic activity and tax rates. As the economy grows, revenue collection will rise, even if no changes are made to tax rates and no measures are put in place to improve collection. In the 2014 medium-term budget policy statement — released before Moyane’s restructuring — treasury estimated that revenue collection would be R1.055 trillion for 2016.

An issue that remains speculative until more data becomes available is that Sars may have delayed tax refunds to inflate revenue.
Analysts and the minister have raised concerns about suspected manipulation.

Regarding the 2017 revenue shortfall of R30bn: as much as Moyane does not deserve credit for the 2016 outcome, we cannot simply assume he is responsible for the predicted 2017 shortfall.

However, Gordhan has suggested that Sars is partly responsible.

It may not be possible to adjudicate between Gordhan’s concerns and Moyane’s defence. But two issues favour Gordhan’s version

Moyane’s explanation is that customs duties were dragged down by R6.5bn because imports fell. Vat fell by R11.3bn and personal income tax, the anchor of revenue collections, underperformed by R15.2bn.

But these explanations don’t help us understand why income tax fell. And how do we know that the entire decline in Vat collection was because of lower imports?

We must accept that it may not be possible to adjudicate definitively between Gordhan’s concerns and Moyane’s defence.

A buoyant matter

However, two issues seem to favour Gordhan’s version. The first is the expected dramatic fall in tax buoyancy from 1.47 in 2016 to 0.86 in 2017. The term relates to the relationship between changes in tax revenue and GDP growth.

Second, it seems possible that Sars inflated 2016 collection, and hence buoyancy, by delaying refunds. Legitimate refunds accrue interest and cannot be delayed indefinitely, so these chickens may have come home to roost.

The one clear conclusion is that Moyane was wrong to take credit for revenue exceeding R1trillion in 2016 — this was expected prior to his appointment.

If delayed refunds are contributing to the 2017 shortfall, then arguably Sars is responsible. It should publish detailed statistics on Vat and income tax refunds to allay such concerns. We can say in Moyane’s favour that he has not (yet) done enough harm to definitely compromise collection. And political disillusionment has not yet led to a tax revolt. But negative achievements are a weak basis for announcing success.

* Muller is a senior lecturer at the University of Johannesburg’s School of Economics & Econometrics.

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