Budget Speech 2019 shows significant inefficiencies still plague SARS

This year’s Budget Speech highlights the inefficiencies that are still being faced by the South African Revenue Service (SARS). To start, it should be noted that all of the major tax categories underperformed last year. Revenues from personal income tax, for example, had to be revised downwards this year by R8 billion, and corporate taxes by around R12 billion.

While this could in part be explained by low economic growth, these numbers are in fact extremely high, and we would attribute some of this lost revenue to the fact that SARS is still operating inefficiently and struggling to collect on taxes. Another clear sign that SARS’ inefficiencies have not been solved yet, is the amount of money lost last year as a result of the backlog in Value Added Tax (VAT) refunds. During the Mid-Term Budget Policy Statement in October, Treasury estimated that there was around R20 billion in withheld VAT refunds that still had to be repaid. In today’s Budget Speech it was revealed that the figure was under-estimated in October and that the actual figure is approximately R8 billion more.

Lastly, one important number that also gives us a glimpse into the efficiency of SARS together with the taxpayers’ morality is the tax buoyancy figure. This figure describes the relationship between total revenue collections growth and economic growth.

A figure larger than 1 indicates that the Government’s collection figures are outpacing economic growth (either as a result of increased tax rates or increased efficiencies in collection). In the 2018 Budget Speech, it was estimated that the tax buoyancy figure would be around 1.51 (mostly because of major tax changes like the 1% increase in the VAT rate). However, this year’s Budget Speech revealed that the actual figure was 0.98, which indicates that the revenue collection figure did not keep up with economic growth.

It should be noted, however, that these inefficiencies are definitely under Treasury’s radar as it seeks to implement some of the recommendations of the Nugent Commission, which is a very positive step. Some of the steps include the re-establishment of the Large Business Centre, the introduction of the Illicit Economy Unit and the appointment of a permanent commissioner.


Mike Teuchert

National Head of Taxation