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The announcement that a Commission of Inquiry into issues at the South African Revenue Service (Sars) has been established has largely been welcomed as a step in the right direction.
Finance Minister Malusi Gigaba announced today that President Jacob Zuma had agreed to establish an inquiry into the tax administration and governance of Sars.
Gigaba’s request came hot on the heels of his projected revenue shortfall in excess of R50 billion for the current financial year, announced in his recent medium term budget policy statement.
“It is critical for government to determine the cause of the tax revenue under-collection in order to enable government to take urgent remedial steps to ensure that Sars is able to meet its revenue targets as set out in the medium term budget policy statement and budget,” Gigaba said on Tuesday.
The inquiry will help to assess what factors are responsible for the under-collection of revenue by Sars, and what steps need to be taken to improve performance management systems at Sars to improve its capacity to collect revenue.
The budget statement recognised that, while the economic cycle is the most likely and significant factor driving lower revenue-collection, other factors could also be at play, like weakening tax morality and challenges facing tax administration.
Whatever the reason for such shortfall, the risk of under-collection of revenue impacts directly on the size of the future budget deficits, and hence on the sustainability of the projected debt-to-GDP trend, and directly on South Africa’s credit rating and growth prospects, Gigaba said.
“In light of the continuing deterioration of the situation at Sars, the terms of reference that will guide the inquiry need to be defined and must be made public as soon as possible,” commented the Democratic Alliance’s spokesperson on finance, Alf Lees
“With the wide range of issues plaguing Sars, the leadership of the institution must be thoroughly investigated, and the scope of the inquiry must extend at least as far back as when Tom Moyane was first appointed as the commissioner,” he said.
Some of the issues mentioned by Lees include:
• The mass exodus of senior and effective employees;
• Reports of unlawful (according to the Auditor-General) bonuses paid out to Sars executives;
• Undue delays and wrongful obstructions to tax refunds; and
• Factually incorrect communication surrounding people’s tax returns.
“The problems are clearly not new and have only worsened through the course of this year,” Lees said.
“The deterioration of the public’s trust in Sars must be halted to avoid more shortfalls in revenue collections.”
Sorting out Sars was one step in a four-step corrective plan suggested by the Banking Association South Africa following the medium-term budget speech.
The association suggested that Zuma needed to do the following to enable the country to make the correct turn:
• Appoint a judicial commission of inquiry into state capture
• Fire the Eskom board and ask a capable new board to clean out the executive and management
• Stop the policy uncertainty and negative messaging which is impacting decisions to invest in our country
• Address the issues plaguing Sars, so that the tax collecting authority could focus on broadening the tax base and efficiently collecting taxes to address the deficit.
At the time, the association’s managing director Cas Coovadia said the medium-term budget statement was “a stark reminder of the conundrum we face as a country, primarily as a result of devastatingly poor leadership by the president and those around him who have relegated national interest to their personal agendas”.
Coovadia said that the budget statement showed that South Africa was “now at a T-junction” and said there was only one way to put the country on to an inclusive and sustainable growth path.
“That choice includes building confidence in our economy to attract substantial local and global investment and avoiding further sovereign downgrades.”
