Sars may have ‘mountain to climb’ to meet tax target

The South African Revenue Service (Sars) may have to climb a mountain to meet its tax revenue target of R1.265 trillion for the 2017/18 fiscal year, its commissioner indicated on Monday.

Speaking at the official launch of Tax Season 2017 in Soweto, Tom Moyane said the economy had entered a technical recession and some companies had already shed jobs. While Sars was resilient, the economic environment had a concomitant impact on its ability to collect what was due to the fiscus.

Sars was mindful of the vicissitudes and external factors that affected the economy. If the economic contraction continued, the revenue service would have a “mountain to climb”, he said.

President Jacob Zuma warned on Friday that South Africa would likely fail to meet government’s GDP growth projection of 1.3% for 2017. The International Monetary Fund and World Bank have revised their growth expectations for the local economy to 1% and 0.6% respectively. Africa’s most industrialised economy recently entered a technical recession after two consecutive quarters of negative growth.

Finance Minister Malusi Gigaba said even during difficult economic conditions, Sars had continued to collect in excess of a R1 trillion in revenue.

“For them to exceed that target they need the economy to be kicking.”

As economic growth faltered over the past few years, revenue collection figures have repeatedly been revised downwards. In the 2016/17 tax year, Sars collected R300 000 more than the revised target of R1.144 trillion at the eleventh hour. The revenue service collects about 90% of all government revenue. Failure to meet the target would put pressure on the fiscal framework and may require government to borrow more money or to increase taxes.

But although growth has slowed significantly in recent years, tax collection as a ratio of GDP has remained surprisingly buoyant – in some cases even higher than it was during economic boom times in South Africa’s history. This has largely been the result of limited fiscal drag relief, high wage settlements, a shift towards highly skilled workers and resilient VAT collections, but there are concerns that this buoyancy may not be sustainable going forward.

Asked whether Treasury still expected Sars to meet the revenue target set during the February budget given the deteriorating economic situation, Gigaba said an announcement would be made during the Medium-Term Budget Policy Statement (MTBPS).

Government would announce an action plan to implement certain structural reforms in the economy after the ANC’s National Policy Conference. The plan was drawn from 13 issues it had identified and that had consistently been raised by investors and ratings agencies, the minister said.

“It is extracted from the 9-point plan. It provides an action list of things to do and the timeline – that is why we call it an action plan. So as you do things and complete them you cancel them off the action plan so that we are able to both measure ourselves and get measured by our social partners on the extent to which we are implementing these specific action items.”

“The problem with us not undertaking that route is that these issues remain there lingering forever without business knowing what is going to happen by what time and it will be done by whom.”

Some of the issues related to the mining industry, broadband and spectrum allocation and fiscal policy including the office of the Chief Procurement Officer.

Gigaba said he had meetings with various business organisations and scheduled engagements with labour. Government wanted all partners to focus on building the economy, reigniting growth, boosting business confidence and getting investments going so that it could create jobs and expand the tax base.

“It is quite obvious to me that we need to do things differently and to work a bit harder in order to achieve all of this so that the low growth doesn’t become a vicious cycle with low government spending, low household consumption, low investments, low incomes but that we can turn the cycle around and get the economy kicking on all fronts.”

Brought to you by Moneyweb