SARS announces another bumper harvest

On Thursday, 20 September 2007, the South African Revenue Services (SARS) tabled its annual report in Parliament. Total collections for the 2006/2007 financial year topped R495.5 billion and exceeded the already revised estimates by R5.9 billion. How does SARS manage to exceed revenue collection expectations year after year? FAnews Online examines some of the comment made by Minister of Finance, Trevor Manuel and SARS commissioner, Pravin Gordhan during the presentation.

The first point is that more taxpayers inevitably lead to higher tax contributions. Manuel mentioned that part of the revenue collection success could be attributed to the continued growth in South Africa's taxpayer base. The number of registered taxpayers in the 2006/2007 tax year was up 8% on the previous reporting period and Manuel expects this trend to continue in coming years.

Collections were also significantly bolstered by improvements in operational and administrative efficiencies at SARS. New processes and improvements in information technology enabled SARS to accommodate an increase in submitted assessments (from 4.5 million in the 1995/1996 year to more than 15 million currently).

Personal tax nets R8.2 billion more

Collections from long suffering personal taxpayers were well ahead of expectation in the period under review. Gordhan revealed that personal tax collections reached R141.4 billion and exceeded budget by R8.2 billion. Gordhan ascribed this excess to better than expected annual bonuses and high average wage increases. Inflationary pressures and strong action from trade unions contributed to average wage increases nearing 9% during the tax year.

2006/2007 also saw solid collections from corporations, Value Added Tax and Customs and Excise. Collections from corporations soared to R120 billion and now accounts for 24.2% of overall revenue.

We believe SARS will be able to maintain their collection momentum in coming years. Personal taxation will continue to grow as domestic employment conditions improve and the latest round of inflation beating wage increases will serve to swell state coffers even further. A welcome side effect of an efficient revenue service is that the general population becomes more tax compliant something which will add to collection successes in coming years too.

Tax amnesty plays a cameo role

A fair tax system requires that all citizens (and legal entities) fulfil their legal tax obligations. The more taxpayers there are, the less each entity has to contribute in the longer term. A major concern in South Africa has been the number of small businesses operating beneath the legislative radar. SARS continues to struggle to bring these businesses into the tax net. "We faced the [joint realities] that the small business market is rather fragmented and that there is very little research into this sector of the economy," says Gordhan.

Programmes like the Small Business Tax Amnesty (which closed earlier this year) have been quite successful in boosting tax registrations from small business. The amnesty was designed to bring small businesses that had not previously registered for tax (or submitted annual returns) into the tax fold. In June this year, Manuel announced that more than 275, 000 businesses had made use of this opportunity to normalise their tax affairs.

Individual taxpayers have also enjoyed the opportunity to benefit from a tax amnesty. This amnesty, announced by Manuel in the 2003/2004 budget applied to exchange control and income tax act contraventions on offshore funds. It resulted in more than 43, 000 individual taxpayers declaring their indiscretions and regularising their affairs with SARS. Applications declared R64 billion worth of foreign assets and SARS netted proceeds of about R2.4 billion in the 2005/2006 year.

Blame it on the strong economy

Gordhan was quick to placate those taxpayers who believe that SARS is becoming overzealous in collecting taxes. "The combination of sustained economic growth, enhanced service and efficiency within SARS and a constantly improving culture of taxpayer compliance helped to nearly double revenue collection since 2001/2002."

It is probably fair to say that rising income tax collections are signs of a buoyant economy. Favourable economic conditions have provided Manuel with the opportunity to implement tax savings in a number of his annual budgets in recent years. The result is that individual taxpayers are marginally better off today than five years ago.

Will SARS be able to offer more relief to personal taxpayers in the coming budget year? If all the factors mentioned in today's article are considered, there will certainly be room for more tax concessions to private taxpayers. Taxpayers can expect the majority of relief to be aimed at lower income earners but we would not be surprised if businesses get a slice of the pie too.

Editor's thoughts:
Although everyone realises that tax is a necessary evil, there are many taxpayers who think SARS is a bit too proud of its achievements. SARS has managed to exceed its collection targets in each of the last five years. Is SARS exceeding its collection targets because the targets are too low, or because the economy and collection mechanisms are improving? Send your comments to [email protected]