The South African Revenue Service (Sars) commissioner Edward Kieswetter has vowed to stop big companies and wealthy individuals who are becoming “increasingly aggressive” in the way they use legal loopholes to avoid their tax obligations.
Speaking to Business Times on Friday, Kieswetter said while most taxpayers were honest, some powerful individuals and institutions were devising extreme and complex plans to avoid paying their share.
“We are very clear that most taxpayers are honest. The law allows taxpayers to arrange their affairs to minimise their tax payments. There’s nothing wrong with that. It’s called tax planning. But when taxpayers begin to involve themselves in complex and sophisticated reasons, with no other purpose than to avoid tax, then there’s a problem. In fact, our general anti-avoidance regulations … says you cannot arrange your affairs where the sole purpose is to avoid paying tax.”
Kieswetter’s remarks came two days after finance minister Enoch Godongwana tabled the 2024 medium-term budget policy statement (MTBPS), which showed that tax collection for 2024/25 was R22.3bn lower than was anticipated in February.
Sars saw import VAT collections contract by 4.5%, net fuel levy collections by 3.9%, and an underperformance in personal income tax collections due to weak private sector wages. While these factors have their roots in declining fuel consumption, receding inflation, a stable repo rate and cooling fuel prices, Kieswetter said Sars must enforce compliance to improve projected revenue collection.
We’re not anti-wealthy or anti-large. We’re are anti those who deliberately seek to mask their true wealth or income for no other purpose than to evade their tax
— Sars commissioner Edward Kieswetter
He said the large business unit was showing more agility and responsiveness thanks to improved electricity security and R8.8bn in additional corporate income tax provisional payments, which was a good signal for collections for the rest of the year.
Kieswetter said while South Africa’s wealthy are taxed sufficiently, it was vital to bolster the ability of the revenue service to administer tax laws and ensure compliance. “They can mask their true beneficial ownership by interposing a trust or a company, whereas they are the actual beneficial owners. They can do income shifting… and then you have promotors, tax advisors, and practitioners, many for whom it has become a full-time job to design structures and schemes to avoid paying taxes.”
He said Sars found similar behaviour among some large companies that sought to dodge their tax obligations, and were well-resourced with legal and technical expertise. He said a legal battle against such companies was like “going into a gunfight with a nail clipper”.
“The tax heavyweights they can put on the other side of the table compared to the people we put on our side creates so much inequality and inequity. We’re not anti-wealthy or anti-large. We’re anti those who deliberately seek to mask their true wealth or income for no other purpose than to evade tax.”
Regarding the two-pot system , the Sars boss said by Friday, just under 1.7 million applicants had withdrawn over R30.1bn in funds, incurring R7.42bn in tax and recovering R735m in debt from applicants. However, these wouldn't compensate for the key contractions, he said.
In his speech on Wednesday, Godongwana said tax collection for 2024/25 was expected to miss February budget projections by R22.3bn.While Sars would receive a R2bn boost between 2025/26 and 2026/27, he said he’d focus more on economic growth to bolster revenues. “Over the next two years, the main budget revenue estimate has also been lowered by R31.2bn. In the absence of faster growth and in the face of external risks, tax revenue will remain under pressure, forcing us to make difficult decisions on where to spend,” he said.
The minister said lower revenue prevented the state from accommodating all demands on the fiscus. National Treasury would ensure the state stuck to its debt-reduction strategy to create the necessary conditions for faster economic growth for higher revenue collection.
In a call with investors on Wednesday afternoon, Treasury director-general Duncan Pieterse said additional funding for Sars was proposed to help it increase revenue collection and improve tax compliance.
On illicit tobacco, Kieswetter said Sars planned to install CCTV cameras at tobacco warehouses for surveillance, and would take this “to the highest court”.
In September, it lost an appeal of a Pretoria high court ruling against the installation of cameras, in a case brought by tobacco groups and the Fair-Trade Independent Tobacco Association. “We will continue that work [to target syndicates and enhance surveillance] and that fight will continue. We have substantively unwound one syndicate, but there are others.”
British American Tobacco head of corporate and regulatory affairs in sub-Saharan Africa Johnny Moloto said the illicit tobacco trade was currently estimated to be as much as 70% of the market and was costing the government billions in excise tax revenue.
“Reflective of this, we believe the government loses an estimated R24bn in excise tax revenue every year. This money is sorely needed in an economy with a high debt burden and poor economic growth. If recouped, it would be critical for development projects such as education — potentially preventing the budget cuts we now see threatening the jobs of thousands of teachers.”
Kieswetter said Sars had upped its debt resolution efforts, resolving 1.7 million cases in the first six months of this year, compared to 2.1 million in the entire previous year. He said Godongwana had agreed to provide more resources from the National Treasury to support these efforts.
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