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Revitalised Sars vital in a time of raging corruption

Budget 2019 forecast

It is that time of the year when the minister of finance squeezes South African taxpayers for more money in order to finance the different government programmes and try to balance the national budget. This year it is going to be tricky to convince taxpayers to contribute more in light of the staggering levels of government corruption exposed by the various commissions of inquiry.

It will be a brave minister and even braver ANC government that tries to increase the tax burden for taxpayers, especially when the national and provincial elections are less than three months away. So, increasing tax rates, while tempting, is unlikely to be adopted at this time.

Revitalising the South African Revenue Service (Sars) is key. The Nugent commission recommended, among others:

  • Appointing a permanent commissioner for Sars;
  • Re-establishing capacity to monitor and investigate illicit trade, in particular the trade in cigarettes;
  • Re-establishing the Large Business Centre (LBC); and
  • Sars recruiting more suitably qualified persons from within or outside Sars to take control of Sars information technology (IT) and renew development of IT.

Re-establishing the integrity of Sars is key to improving collections and these steps are the impetus needed.

Focusing on low-hanging fruit will also make a difference. For example, illicit trade in cigarettes has grown tremendously in the past few years. According to the annualised Ipsos Wave 2 data, Sars will lose at least R8bn in taxes in the next 12 months. If illegal cigarettes continue on the current trajectory it will be much more. This is an easy win and has been allowed to drift in recent years.

On August 24 2018, Sars announced that it was re-establishing the illicit economy team and the LBC. If these teams are properly equipped and supported the minister can expect to start recovering a portion of the estimated R8bn loss in excise/tobacco taxes and more billions in corporate taxes.

Sars should be an information technology-driven business. IT enables its core business and needs to be linked to the digital economy if it is to fulfil its mandate. IT skills in support functions, though they have their role, are not sufficient to maintain and develop Sars' core systems. At the start of the period under inquiry, Sars had a world-class IT division. Technology was central to the modernisation programme and the force behind many achievements. It cannot be permitted to fall behind.

The process to appoint the new commissioner is underway and we hope it will completed by the end of March 2019. The re-establishment of the LBC and the illicit economy team, and maintenance and improvement of the IT system are some recommendations that are being implemented by the acting commissioner, Mark Kingon.

The Minister will also have to consider how to adjust the Road Accident Fund levy to support the entity, which has a deficit of more than R200bn. Last year the levy was increased by 30c/l to R1.93. This year the increase will probably be in around the same range, between 20c and 40c, but measures will have to be introduced to halt the increasing deficit.

The general fuel levy, a tax charged on every litre of petrol sold, was increased by 22c last year to R3.37/l. This year the increase may be around 20c/l, but this being an election year and the uproar from consumers during the second half of last year due to the ever-increasing price of petrol, the minister may forgo the increase or opt for a slight increase.

Despite problems facing the legal tobacco industry, sin taxes on alcohol and tobacco will probably be increased. Ad valorem excise duty on luxury goods such as motor vehicles, electronic equipment and cosmetics used in SA and the Southern African Customs Union will probably also be increased.

Finally, the minister will implement the recommendation of the independent panel of experts by zero-rating white bread, bread flour, cake flour, sanitary products, school uniforms and nappies. The total cost is estimated at R4bn and the zero rating is expected to provide VAT relief to households in the lower-income groups of approximately R2.8bn.