Sars' new strategy is paying off

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Jeremy Maggs: Now, remember that in last week's Budget, Minister of Finance Enoch Godongwana outlined South Africa's long-term tax policy and strategy, highlighting the objectives of widening the tax base, strengthening tax compliance and improving administrative efficiency. It may be. So I think the question is: is this being achieved, and if it is optimally achieved, what effect does this have on the ficus?

Louis Botha works in the tax transaction and administration practice at Cliff Decker Hofmeyer, a corporate and commercial law firm. Welcome, Louis. Quick question: What are these measures that the Minister mentioned, and more specifically, do they have a positive impact on the overall efficiency of tax collection?

Luis Botha: Hi Jeremy, thank you. Yes, so there are a number of measures that the Minister mentioned, of which he may only briefly mention two. One of his is the modernization and restructuring of SARS (South African Revenue Service). Of course, you and your listeners will know that following the Nugent Commission, a number of recommendations were made that the Commission indicated needed to be made to address. Certain issues that have arisen within SARS over the past few years.

One of the main events that exemplified the turnaround process was the rebuilding of the Saas large business center to its original appearance. This is essentially a one-stop shop for businesses with a certain income level. You can solve your tax problems more easily. The rationale behind it is that companies generate high profits and therefore earn a large amount of revenue and therefore want to enhance and improve the efficiency of the revenue collected from it.

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The second one, which is more novel, is the so-called High Net Worth Individuals (HWI) division, which was set up a few years ago and is basically Sars' focuses on the individual. If they believe that there may be risks that they try to deal with and contain, not just locally, but especially with offshore asset structures and, for example, through evasion or very aggressive tax planning or, in the worst case, avoidance. If there is.

There have been a number of measures, and the previous budget also provided a large amount of funding to Sars, and I think the results of those efforts were visible last year.

Jeremy Maggs: Lewis, what's really interesting here is that the Commissioner said earlier that they're starting to use artificial intelligence to model debt trends. Again, this would be beneficial for Ficus and perhaps for SARS in the long run.

Luis Botha: Indeed, Jeremy, it definitely will be. The liability side is probably newer, but if you look at the audit metrics by analogy, audits are typically done randomly based on risk. So Sars will have algorithms that it uses to detect certain areas of risk or areas where it recognizes that a person may be under-reporting certain income. From the debt side, we don't know the exact details of what exactly this debt model is, of course. But clearly, it is most likely to assist the SARS Debt Management Department, which is responsible for debt collection, in targeting and identifying where there are large amounts of unpaid debt over a long period of time and recovering debts more efficiently. The goal is to make it possible. . Also, on the debt side, what we have seen is that Sars is taking advantage of some of its broader and expanded powers to collect taxes under the law, which is encouraging.

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Jeremy Maggs: That's all well and good, and we may have the tools, but South Africa's power dynamics mean that expanding its tax base will always be a challenge, despite the fact that the tax ledger has been expanded. It will be.

Luis Botha: Jeremy, I completely agree. It's really the fact that in an environment of limited economic growth, there's only so much SARS can do, and I think your question points to that. This allows Sars to look for cases, departments and individuals where large-scale violations have occurred.

But at the end of the day, if growth is not stimulated, profits will not increase and tax collections will not increase.

That's why Sars has done a lot in the last year to improve efficiency, including leveraging third-party data to try and collect as much as possible. But as you said, there are limits to what they can do.

Jeremy Maggs: So despite all that, what do you think we need to strategically focus on next year to achieve the goals set out by SARS?

Luis Botha: I think a lot of good foundations have been laid and I think they should build on the focus areas that have been identified. For example, one of the things they've done, announced in previous budgets, is to focus on what's called transfer pricing. Transfer pricing refers to transactions where goods and services are sold and exchanged across national borders, typically in a multinational context, and where there tends to be some scope for base erosion or profit shifting. What we've seen is that Sars is placing more emphasis on these types of orders. Of course, some want SARS to treat the tax base fairly within the framework of the law, but that is one area he will focus on.

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I think that's another good area. There are many things that could be mentioned, but this is two of them. In addition to transfer pricing, there is a focus on the illegal economy. This is also an area where we have seen the expansion of the tax register, SARS essentially to find individuals and businesses that owe taxes, individuals and businesses that have not previously been registered, and bring them into the tax net. to take appropriate measures.

Jeremy Maggs: I'll leave it there. Thank you very much to Mr. Louis Botha and the law firm of Cliff Decker Hofmeyer.