The tax numbers told a story, but what was the story?
21 April 2015
Posted by: Author: Hilary Joffe
Author: Hilary Joffe (BDlive)
The annual revenue numbers from the South African Revenue Service always tell a story that is as much about the state of the economy as the state of SARS itself. But this year it was unusually difficult to puzzle out what that story really was.
Start with the total of R986.3bn that SARS managed to rake in by midnight on March 31. Not surprisingly, the "spin" put on the numbers was that SARS had overcollected by more than R7bn relative to the revised estimates Finance Minister Nhlanhla Nene pencilled into his budget in February this year. After a tumultuous few months in which SARS lost several of its key executives, the minister and commissioner Tom Moyane were at pains to emphasise that the institution continued to be strong and effective, and capable of beating its targets — even in a tough economy.
But the overcollection was really a R7bn undercollection compared with the original, February 2014 budget number, which is the benchmark against which the number is usually judged. That original target had been revised down as economic growth forecasts were cut, so SARS simply beat the much lower target. Cynics might suggest the target was cut in February just so it could be beaten. But what’s more interesting, perhaps, is what changed for SARS to end up with more than it had expected.
This, then, is the second part of the story, which is essentially one of personal taxes coming in much higher than anyone had expected, while corporate taxes came in much lower. It is a disturbing story as it shows an economy in which pay packets, and the tax on these, is expanding rapidly — at a time when the productive sectors have seen their profitability slashed.
The "spin" on the recent SARS numbers had it that both corporate and personal income taxes were ahead of the revised estimates. Corporate income tax collections fell R12bn short of the original targets set last year, while personal income tax collections beat it by almost R18bn.
A big chunk of that seems to have been something of a surprise — essentially, SARS lucked out this year, with a sudden inflow of more than R8bn from tax on share incentive schemes, the result of changes made over the past several years to the way these schemes are taxed. Those changes aimed to ensure people pay the full tax on the value of the shares at the time those shares vest and those individuals are permitted to sell the shares — where previously people found ways of reducing the tax liability by getting their shares to vest earlier, when the value was lower.
One reason for the sudden jump in collections on the share incentive schemes is that many have five-year vesting periods — many of these shares may have been issued in the wake of the financial crisis, when companies were upping the incentives in lieu of cash increases. A strong stock market over the past year would also have ramped up the takings for SARS.
The share incentive bonanza was no doubt a factor in the 13% increase in the personal income tax take for the year, but the fact that it is much higher than the inflation rate or even the average rate of wage settlements for the year (about 8%) also reflects SA’s skills shortage.
The story overall, though, is that the burden of taxation is increasingly falling on individual taxpayers, who now contribute 35.6% of total tax, up from 29.5% in 2007-08. This is unsustainable, as Nene said — SA needs far more people to be working and earning and paying tax, otherwise an ever heavier burden will fall on the limited numbers of people who are in jobs.
That’s the case in large part because the contribution from corporate taxes continues to fall as the economy languishes. After a year of strikes and sliding commodity prices, the latest numbers show tax collections from the mining sector declined by a sharp 16%, with manufacturing down 4.5%. It was the financial services sector, particularly the banks, that came to the rescue.
SARS made much of improvements in compliance that brought billions more into the fiscus, and its people deserve credit, as do the taxpayers Moyane and Nene correctly thanked for their efforts.
One can’t help wondering, though, just how certain Nene is of the numbers. The revenue figures SARS announces on April 1 are always preliminary, subject to challenges and updates in the next few months. Equally, government spending data take time to finalise after the fiscal year end. But in the past, the minister has always provided an update on the fiscal deficit in the light of the SARS collections numbers. This year he declined to do so — for legitimate reasons no doubt, yet it is possible these numbers are subject to a higher than usual degree of uncertainty.
That would not be surprising given how unstable SARS has been in recent months. The revenue story told earlier this month is striking because it seems to show an institution that is as effective and efficient as ever, with nothing broken that particularly needs fixing. But if that is the case, why has the new commissioner felt the need to launch an operational restructuring and to bring in no fewer than three consultancies — KPMG, Gartner and Bain — to take a look at SARS?
One comfort is that the advisory committee, headed by well-regarded Judge Frank Kroon, appointed by Nene to investigate SARS, will keep an eye on its operations and strategy too. Even so, it would be foolish to rely on overcollections in future.
This article first appeared on bdlive.co,.za.