Finance Minister Enoch Godongwana has the unpleasant task of telling South Africans this month that he intends to tighten up a little harder to collect at least R15 billion in additional taxes, while closing the current tax gap and overspending. Increase efforts to prevent waste and outright waste. Theft from the public purse will go a long way toward easing pressure on taxpayers.
Kyle Mundy, tax technical partner and tax policy leader at PwC, said the firm estimates the tax gap to be around R300 billion. While this is not inconsistent with the South African Revenue Service's (SARS) own estimates, it is a significant increase compared to 2020, when it was estimated at around R50 billion.
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Tax disparity is primarily the amount of tax that should be collected, but not due to avoidance or policy provisions such as rebates, deductions, or exemptions.
Mundy says if SARS could close that gap by even 25%, it would make a big difference. This will add an additional R75 billion to the ficus.
One way to close the gap is to improve Sars collection performance. By “injecting” funds and resources into the tax office, we can improve its performance.
“In many ways, the best investment the National Treasury can make is to provide all the resources necessary to enable SARS to do that,” Mundy says.
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Three more state agencies now have access to sensitive taxpayer information
Lack of funding is hampering Sars' progress on the system.
He believes closing the tax gap will create a virtuous cycle. The additional revenue will allow the government to provide some relief to taxpayers or reduce some of the tax rates.
The second most important factor, Mundy says, is to foster economic growth. This will require all the structural reforms that have been emphasized and talked about for many years.
“In some respects, reforms are starting to move forward, but the progress is very slow. Structural reforms are critical to putting the economy on a better growth path, which will also improve profits.”
national expenditure
Mundy believes it is important for governments to address inefficient use of public funds. “The biggest problem is not the lack of income, but the way it is spent.”
There is a metaphor that says, “Eat what you make yourself.''
He asks why civil servants, including members of parliament, benefit from private healthcare, private security and private education rather than services provided by the public sector.
This allows them to be isolated from the rest of the population. “There is a disconnect between what affects them and what affects the broader population.”
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According to the 2023 Tax Statistics Publication, the three largest contributors to the total tax revenue collected by SARS remain personal income tax, corporate income tax, and value added tax. Together, these three accounted for 81.3% of total tax collections. Businesses contributed almost 21% of total tax revenue in 2022-23.
the little guys
A key part of the economy that has a lot of airtime but little support is the plight of small and medium-sized enterprises (SMEs).
Colin Timmis, country manager at Xero South Africa, a cloud-based accounting software platform for small and medium-sized businesses, says the Income Tax Act provides two important opportunities for small and medium-sized businesses to reduce their taxes.
Read: Budget 2023 has good news for small businesses, but needs more subtle incentives
Although small business corporation (SBC) tax and sales tax systems have existed for many years, their prevalence is very low. In fact, Timmis says when it comes to sales tax, it's “terrible.”
Approximately 1.2 million companies have filed tax returns. However, only about 160,000 people are registered with the SBC. This number has been stagnant for the past five or six years.
Need to reconsider
The interest rates and design of the two schemes remain largely unchanged. The turnover tax eligibility threshold of R1 million has remained unchanged since its introduction.
“The reinvention of the two tax systems and the improvement of education have probably been long overdue. There has been no rethinking of how to make them more attractive to business owners to take advantage of,” Timmis said. says.
The 2023 South African SME Zero State Report said most SMEs would like more support from the government. Almost two thirds (64%) of participants want government investment in digital skills and innovation, 35% want more government support through tax incentives and 28% want funding. 26% want government-supported skills development.
