Finally, someone voices alarm at SARS shenanigans
11 February 2015
Posted by: Author: Hilary Joffe
Author: Hilary Joffe (BDlive)
Asked at a presentation on the economic outlook on Tuesday whether he was concerned about the ructions going on at the South African Revenue Service (SARS), Standard Bank’s chief economist, Goolam Ballim, said he was looking at these developments "with enormous trepidation".
He said SARS was a world-class institution, and questioned the motives for its reorganisation. He talked about how the institutional fabric SA had built up over the past 20 years had been undermined in the past couple of years. He indicated it has become essential to harbour cynicism when state institutions were suddenly, and unceremoniously, reinvented.
This was unusual, coming from the careful, mild-mannered Ballim. But perhaps more remarkable is that he was saying anything at all.
We have not had comments like this from anyone — not from business people or tax practitioners, nor from the National Treasury, which after all relies hugely on SARS’s ability to collect the cash its revenue targets specify.
Perhaps we haven’t asked. But the tax community has been remarkably stoic as SARS has shed large swathes of its top management, losing decades of experience and expertise. It has made timidly supportive noises as the new SARS commissioner, Tom Moyane, has embarked on what looks like a classic case of fixing what ain’t broken.
Indeed, Moyane must be so busy suspending executives, trying to extract money from them, accepting resignations and putting a new operating model in place at SARS by April 1, that it is hard to imagine how he finds the time to collect the revenue the finance minister has asked of him for this year.
And that’s a big problem, because this is not the easiest of years for the fiscus. A year ago, the Treasury was projecting economic growth of 2.7% and SARS was set a revenue collection target of R993bn. October’s medium-term budget cut the growth forecast to 1.4% and reduced SARS’s target by about R10bn, to R983.6bn.
Chances are the target will have to be lowered further when the finance minister presents his budget in a couple of weeks’ time — and even then SARS could still miss the lower target.
December’s figures are usually ones to watch because that’s a key month for consumer spending and for imports — hence for value added tax and customs duties — as well as being the largest month for company income tax payments. Budget data from the Treasury showed a budget balance that was slightly worse than expected, with quite a sizeable under-performance on corporate income tax receipts.
Whether the minister can still make his (revised) 4.1% budget deficit target will depend on whether SARS can step it up this month and next. But the sharp fall in the oil price will have meant that VAT collections on oil imports are down. Corporate collections may have sagged further, too. The question is whether a much-weakened SARS team can claw these back in the way the well-oiled revenue machine could do in the past. That depends in part on whether the new leaders understand the spikes and dips of the business cycle and know how to manage the tax take through these.
When the economy is growing at 3% or more, the tax money tends to just walk through the door. Witness the billions of extra cash that rolled in during the boom years, when SARS was constantly ahead of target.
In tough times, however, SARS has to work a lot harder — using its knowledge of the economy and its sectors to pull the collection levers, engaging with large corporate taxpayers, applying the law in instances of noncompliance and generally driving hard for settlements and payments, especially now in the last few weeks of the tax year.
What has been remarkable about SARS in the years since the great recession of 2009 is that it has been able to do this, and meet targets, even when the economy was weak. It is hard to believe it can continue to do this now it has got rid of the people who led much of its investigative and compliance capacity, as well as providing its operational and technology expertise.
The numbers may tell when SARS reports final figures for the tax year on April 1. But it might be easy to blame any shortfall on the economy this time. The toll may start to tell only over the medium term. And when it does, the finance minister could be hard pressed to deliver on his fiscal targets in an economy that Standard Bank for one expects to grow by no more than 2%-2.5% a year over the medium term.
While most economists and rating agencies cite the public-sector wage round as the big risk to the fiscal consolidation targets, hardly anyone mentions the goings-on at SARS. Even if Moyane were able to build a better, brighter SARS, the denting of its credibility is itself a risk — if the more reluctant of our large taxpayers even suspect it might be vulnerable, they will fight harder than ever not to pay.
So why have tax practitioners been making such soothing and supportive noises? They do, after all, have to work with SARS officials daily, so maintaining good relations matters. No doubt they also want to do what they can to preserve the credibility of so important an institution. One certainly hopes that it’s not the case that an eroded SARS suits some of their dodgier clients just fine.
This article first appeared on bdlive.co.za.