“We often feel like we’re going to a gunfight with a nail clipper:” 7 Takeaways from the SARS revenue results

SARS presented its revenue results for 2022/23 this week, and the commissioner, Edward Kieswetter, shared his areas of concern and predicted a future where tax is a non-event.

Tax revenue exceeds 2022 expectations but falls short of Budget 2023 

SARS revenue collection efforts for 2022/23 exceeded the government’s 2022 budget by R88 million. 

However, the net tax revenue of R 1,687 trillion, announced by SARS commissioner Edward Kieswetter, came in slightly under the Budget 2023’s forecast. Leaving Treasury with a R5,4 billion revenue hole. 

One of the most significant deviations from Budget 2023 was SARS gaining almost R4,1 less in net VAT revenue. 

Finance, transport and communication sectors boom. Mining and agriculture slump 

The finance, transport, and utility sectors drove year-on-year tax revenue growth. However, the mining and agricultural sectors, key employers of unskilled labour, saw significant year-on-year declines. 

Loadshedding’s R60 billion knock to tax revenue and green energy’s potential

Kieswetter said the loss in tax revenue due to loadshedding amounts to R60 billion, with some effects delayed. “SARS expects that the impact of loadshedding will reflect in corporate income tax collections, particularly during the first half of the current financial year.”

The commissioner also stressed a silver lining. “Particularly in 2022/23, collections on wind farms increased 26,6% and has contributed R2,7 billion to the fiscus.” There has also been a 73 percent year on year revenue growth from the top ten solar panel importers. 

BEPS: “We often feel like we’re going to a gunfight with a nail clipper.”

Kieswetter says that base erosion and profit shifting (BEPS) is a huge area of concern. “We acknowledge that companies and individuals are allowed to arrange their affairs to be tax efficient, but when companies do this in form rather than substance, they erode our tax base.”

To combat BEPS, SARS confronts mega corporations, with Kieswetter comparing it to taking a nail clipper to a gunfight. 

“Large corporations are also able to outspend tax authorities by far. I met a large corporation last year and said, ‘your tax department costs more money than the whole of SARS’.”

However, some of this mismatch is self-inflicted.

“That [building of capacity] was interrupted when several years ago when the large business centre was dismantled, and the audit teams were dispersed,” said Kieswetter. “We’re now slowly building skill again so that we’re able to step up to the size of the task. For a time, SARS ability to tackle BEPS was almost neutralised.”

Kieswetter says R6,1 billion was collected from cases that “mainly involve exotic transactions, complex business arrangements.” 

Kieswetter’s concerns: VAT refunds, NPO tax abuse, high net worth individuals 

Kieswetter’s presentation referenced wealthy individuals as a segment. “This begins to lay the foundation to step up our efforts in an important area which is at the moment represented by 58 000 taxpayers excluding their related entities.”

The commissioner referenced tax-exempt units as “also an area of concern and abuse and therefore the focus.

At various points in his presentation, Kieswetter flagged fraudulent VAT refunds as an area of concern and noted that the employment tax incentive was also being abused. 

Fighting corruption

This year R6,6 billion was derived from 334 investigations into criminal syndicates. Kieswetter says they’ve also profiled 212 cases and are conducting 495 enquiries. “All of which, when concluded, should not only yield revenue but also bring perpetrators to book.”

“We’ve made significant progress in collapsing one tobacco and illicit financial flows scheme, and that work continues.”

The future? Tax becomes a non event

“The aim is to build a taxpayer engagement model where tax just happens,” said Kieswetter. He explained that the goal is to move away from the old model of taxpayer declarations. 

“The future of tax has the audacious ambition to move largely to real-time liability as opposed to retrospective liability assessment, that requires taxpayer declaration only as the irreducible exception and almost entirely relies on data from third parties as well as publically available data.”

Kieswetter points to financial institutions, retirement funds, medical insurance, the Deeds Register, and Population Register as sources of such data. 

The commissioner noted that this shift is already happening. “We’ve gone a long way with this with three million taxpayers who don’t have to file a return using only third party data and AI. We produce the assessment outcome, where if taxpayers experience it, they will receive their refund and assessment instantaneously.”

Kieswetter says it’s already used artificial intelligence to flag R76,3 billion that would otherwise have been handed back to taxpayers as impermissible or fraudulent refunds.