VAT hike 'avoidable'

Suspended South African Revenue Services commissioner Tom Moyane.
Suspended South African Revenue Services commissioner Tom Moyane.
Image: Esa Alexander / The Times

The contentious increase in VAT would not have been necessary if the SA Revenue Service (Sars) met its revenue targets.

This was revealed on Wednesday by senior Treasury officials at the commission of inquiry into governance at the tax agency.

The commission, chaired by retired judge Robert Nugent, has heard how a far-reaching restructuring at Sars under suspended commissioner Tom Moyane had neutralised key units at the tax agency that impacted on the organisation's ability to collect revenue.

The Treasury also revealed that while Sars missed its targets, bonuses to officials increased by 41% in a single year.

The VAT increase of 1%, the first since 1993, was necessary to put government finances on a more sustainable path and to fund free higher education, which former president Jacob Zuma announced in December.

The Nugent inquiry is looking into the reasons behind the R50bn hole in revenue collection, among other things. A presentation by the Treasury showed that from 2014, there has been a consistent increase in revenue shortfalls, peaking in 2017/18 at R49bn.

It said tax revenue collections have been significantly bellow projected forecasts over the past four years, "with the latest shortfall sitting at R49bn. The extent of the shortfalls have a significant impact on debt trajectory and the ability of government to meet its public expenditure commitments."

Treasury director-general Dondo Mogajane and deputy director-general Ismail Momoniat described how the relationship between Sars and the Treasury had broken down in recent years and showed how revenue collection had steadily deteriorated during the same period.

Momoniat said if there was no shortfall in revenue collection, the 1% VAT increase, which is hitting the poor hard, would not have been necessary.

The Treasury said it was difficult to identify the possible reasons for the revenue shortfall, which Sars attributed to the state of the economy.

However, Momoniat said the trend before 2014 was that revenue had generally outstripped expectations, but this changed in the last four years.

Now, targets are only being revised downwards, instead of upward, which was also the general trend in the past.

Treasury director for personal and income taxes Chris Axelson said the largest unexplained deviations are for personal and domestic value added taxes.

This correlated with statements from Sars officials that there is an increase in the number of people and companies failing to submit income tax and VAT returns.

He said 40% of the latest shortfall cannot be explained by economic performance or policy measures, which could have impacted on revenue collection.

The presentation showed also that while revenue was in decline, Sars spending on bonuses had increased by 41% in a single year. The tax agency under Moyane clashed with the auditor-general about bonus payments last year.

"The surprising thing also is that their numbers have been going down," Momoniat said.

He added that the swell in staff bonuses suggested that big incentives were used to "win loyalty", despite the revenue shortfall.

Professor Michael Katz said that overly generous bonuses for tax collectors had its own "philosophical problems"

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