Revamped SA Revenue Service reels in big fish, focuses on superwealthy

Revamped SA Revenue Service reels in big fish, focuses on superwealthy
SA Revenue Service Commissioner Edward Kieswetter. (Photos: Freddy Mavunda / Gallo Images / Vecteezy / Unsplash)

In a wide-ranging interview with the SA Revenue Service Commissioner Edward Kieswetter, we discovered the taxman’s plan to target high-net-worth individuals while also widening the tax-paying net.

South African Revenue Service (SARS) Commissioner Edward Kieswetter and his team at SARS have been hard at work rebuilding to improve revenue collection and widen the taxpayer net, bringing a surplus R189-billion to the budget at a time when South Africa has never needed it more.

Over the past year alone, SARS recruited an additional 490 staff (also contributing to sorely needed job creation) and invested R430-million in its information and communications technology infrastructure.

New unit for the ‘superwealthy’

A key part of the SARS renewal has been the setting up of a new unit specifically to focus on wealthy individuals.

The definition of “wealthy” for this division has not been firmed up yet but SARS is starting at the top and the first tranche of taxpayers to come under scrutiny will be those with a net asset value of R75-million and higher, Kieswetter tells DM168.

This will be reviewed as the division scales up.

According to the Tax Statistics 2021 report released by SARS, just 0.6% of individuals fell into the taxable income group of R1.5-million and higher, with a taxable income share of 10.7% and a tax liability share of 22.4%.

Kieswetter says there are three issues that the “superwealthy” unit will be investigating:

  • The nature of income: “In most of these cases, a balance sheet reveals more than a salary slip.” He points out that, whereas ordinary South Africans have a single salary slip, these superwealthy individuals derive income from salaries, investments and assets, and their income is structured differently.
  • Onshore/offshore financial arrangements: These could include international bank accounts or assets held offshore. SARS wants to see a full statement of assets and liabilities.
  • Ownership structures: Assets are often held via a legal structure such as a company or a trust or even a special-purpose vehicle (SPV). An SPV is a subsidiary company formed for a specific business purpose or activity.

Kieswetter says, for now, the new division will be focused on “improving visibility” and gaining a holistic view of these taxpayers’ assets and income. He says the intentions are threefold:

  • To provide certainty and clarity so that taxpayers in this bracket fully understand their tax obligations.
  • To ease compliance so that they are able to pay tax with the least amount of fuss.
  • To strengthen SARS’s ability to respond and have a clear view of what we are dealing with.

“For honest taxpayers, this new division will help simplify their taxes and make things easier, but where we suspect dishonesty, SARS will come down hard and be vigilant for any potential corruption or attempts to hide assets,” he says.

Tax compliance

For tax refunds, the taxman is showing turnaround times of three weeks or less in more cases than not.

At least 5.3 million people were tax-compliant this year, duly submitting their tax returns and, of those, 3.4 million claimed a refund with a cumulative value of R30-billion.

Kieswetter says, to date, two-thirds or R20-billion has been refunded to taxpayers and, of those, 85% was refunded within 21 days.

Kieswetter’s strong, no-nonsense approach harks back to the days of former SARS commissioner Pravin Gordhan, who ran SARS like a well-oiled machine and clamped down on offenders, improving compliance to its highest level.

“We are getting serious about enforcement and verification,” he says. About 19% of personal income tax returns were selected for verification and six out of every 10 cases selected for verification had an outcome in favour of SARS. “That means, if we had not gone through the verification procedure, those taxpayers would have received refunds unlawfully,” he says.

And those efforts have paid off in improving compliance, where Kieswetter reports that the needle has shifted from 62% to 65%.

VAT refunds

Small to medium-sized businesses proved to be the engine burner of the economy, bringing in more revenue than large corporates, with VAT bringing in R384-billion, compared with corporate income tax at R318-billion. For the 2020/21 year, there were 880,553 registered VAT vendors, but only 50.9% were active. Of these, the majority (79.3%) were companies or close corporations.

VAT refunds counted for the most significant component of total refunds at R266-billion for just less than 3.5 million VAT returns. This highlights the massive contribution that would be possible if the remaining 50% of registered VAT vendors became active taxpayers. Kieswetter says, to broaden the taxpayer base, SARS is looking at all aspects of the supply chain, from manufacturers to distributors and retailers.

The government is also taking steps to encourage the growth of small businesses. This includes a R15-billion redesigned loan guarantee scheme to help small businesses post-Covid and a second equity-linked loan guarantee scheme that will launch in April, with initial support from development finance institutions. Regarding turnaround times, SARS has already paid out 652,000 VAT refunds to the value of about R212-billion and, of that, 75% was paid out within 21 days.

Clampdown on fraud

Kieswetter says SARS’s initial refund verification process prevented R30-billion worth of fraudulent refunds from going out. “Sometimes, the process may take longer than 21 days but preventing fraud and saving the country money justifies the work we do,” he adds.

For personal tax verification, this could be as simple as a phone call or email requesting supporting documentation from taxpayers. Kieswetter says most of the time taxpayers submit the supporting documentation and the refund is paid over, but when red flags are raised SARS will launch an investigation.

Shrinkage of the taxpayer net

Between 2003 and 2012, the number of personal income tax (PIT) taxpayers grew by 7%.

Angelika Goliger, chief economist at business advisory firm EY, says that, since 2012, there has been a 2.1% decline in the number of taxpayers, as per SARS data.

“This is particularly worrying as there were only 5.2 million individual taxpayers in 2020. These 5.2 million individuals, (representing approximately 9% of the population), contribute 40% of South Africa’s total tax revenue. Breaking it down further, about 20% of individual taxpayers contributed to three-quarters of personal income tax revenue in 2020,” she explains.

For 2021/22, personal income tax grew to R910-billion from R718-billion the previous year. The tax statistics for 2021 show that individual taxpayers, big business and small to medium businesses accounted for 81.9% of the total tax revenue.

Over the past five years the contribution by individual taxpayers to the total tax revenue has shown a steady increase, moving from 37.2% in 2016/17 to 39.1% in 2020/21. Although tax revenue is increasing, it seems to be coming off a dwindling taxpayer base.

Goliger says there are at least two reasons for this trend. The first is a weak economy, which has reduced the ability of firms to grow, increase salaries and hire people.

“The outlook for South Africa’s economy is expected to remain muted (GDP is expected to grow between 1.4% and 1.8% by 2023) and the unemployment rate has remained at untenable levels – so this trend is likely to persist,” she says.

The second reason is the emigration of skilled South Africans, Goliger says. The UK, Australia and the Netherlands, for example, have all registered strong growth in the number of South African immigrants in recent years. International investment migration advisory firm Henley & Partners says there has been a 40% rise in South Africans seeking real estate globally in the last year.

This raises serious questions about the sustainability of the tax base. Unfortunately, the unemployment scenario does not help. SA’s unemployment rate from April to June 2021 was a staggering 48.9%, albeit on the back of Covid-19 lockdowns and retrenchments. However, high unemployment has been the bane of the country for decades. According to Statista, the unemployment rate was 30.2% in 1999, lifting to 33.47% in 2002 before falling to 22.43 % in 2008, at which point it started climbing again.

Goliga says in the medium to long term, a growing economy is the most significant factor when it comes to sustainably growing tax revenue. She points to the International Monetary Fund, which recently showed that implementing the economic reform and fiscal consolidation agenda could result in SA’s GDP growth reaching 3.6% by 2025, compared with their baseline view of 1.4%.

Between 2017 and 2020, the government has introduced several measures in an attempt to broaden the tax base.

Tax policy measures introduced and implemented over this period include retirement reform from the 2017 tax year, the increase in the effective capital gains tax rates, changes to fringe benefits on vehicles, increases in marginal tax rates as well as partial adjustment for fiscal drag.

Although SARS has improved tax compliance and increased revenue collection, the road to widening the taxpayer net remains a long one, but it is a crucial step towards a sustainable South African balance sheet. DM168

This story first appeared in our weekly Daily Maverick 168 newspaper which is available for R25 at Pick n Pay, Woolworths, Exclusive Books and airport bookstores. For your nearest stockist, please click here.


Comments - Please in order to comment.

  • Richard Baker says:

    Is this an advertorial for SARS and Keiswetter?!

    “Wide-ranging interview and discovery of the taxman’s plan”. I’m sure the columnist put her shoulder to the wheel and left no stone unturned for this article!

    None of this is not already in the public domain!

    All well and good and I’m sure the ( ever decreasing number of) individuals concerned will either be found compliant already or be brought into the system-as should be the case.

    The gaping omission is the question of SARS failure to investigate and prosecute the many hundreds of corruption cases where cursory overview and lifestyle audits, quite apart from self-aggrandisement on social media and Zondo findings give sufficient cause for tax audit.

    Not 3 km from the SARS office in Woodmead is the Waterfall Shopping and Restaurant complex.

    This is where the hopes of South Africa and South Africans ( learners still with pit-toilets)go to die on Sunday mornings .

    A stroll down the hill-armed with just a note-book and pencil-plus some easy searching-could kick-start this process. Just a few high profile successes would send a strong signal and give the nation some hope.

    SARS have statutory powers of seizure and onus rests with the party to disprove-unlike the criminal cases the NPA is trying to pursue without success and already realising the difficulties.
    Why aren’t SARS pursuing these cases?
    And-vitally-why aren’t Daily Maverick asking these questions??!!

  • Andrew McWalter says:

    Try responding to SARS “verification” process. With a max of only 20 supporting documents that can be submitted through eFiling, and 10 via SARS Online Services, they simply do not have the capacity to receive what they’re asking for. Nett result? Taxpayer is deemed “non-compliant”.

    • Dave Reynell says:

      Spot on. I have received emails from SARS (numbers of them) advising me that they have not yet received my 2020 submission ! My accountant has had to contact them several times. I pay my provisional taxes on time and submit alll supporting documents on January 31st each year.

      Read Marianne Merten’s article on how SARs bullies the ordinary (read “small”) taxpayer on Page 14 of this-week’s (26th Feb. to 4th March) DM 168.

  • Nos Feratu says:

    Yes, I’m sure all this info is freely available but Neesa has consolidated it into an easy-to-read article with some interesting stats. Unfortunately she fails to highlight the fact that for the past 50 years or more SARS has treated taxpayers like dirt and until this attitude changes SARS will remain the invasive enemy.

  • Gordon Pascoe says:

    Not surprisingly no mention by SARS about chasing corrupt officials, none of whom will supply their revealing “balance sheets” to SARS. It’s is a crying shame that Mr. Kieswetter and his executive remain so silent on the subject when there are surely hundreds of billions taxpayers stolen money waiting to be recovered. I guess they are untouchable and the longer SARS remains silent the easier it is for the corrupt to hide their ill-gotten gains. You have to ask if this is done on purpose and with more questions than answers, andSARS repeatedly shooting itself in the foot, only adds to its growing loss of credibility.

  • Miles Japhet says:

    Mr Kieswetter

    Please do a Natis search of owners of passenger vehicles valued at R2m and over, and then match these to both individual or other entity tax returns.
    Should make for some interesting reading!!

  • Rod H MacLeod says:

    To widen the tax base, simply get rid of the taxi exemption. That should add about 3 million to the existing 5 million.

  • jcdville stormers says:

    Before you try to impress us Mr Kieswetter go be successful against Nasif Modack Donkie Booysen, Mark Lipfman.Drug syndicates using churches to take money out of the country.You never were successful against Kapdi ,Ernie Lastig Solomons,many others, but your gasbagging leaves me cold.

    • Gerrie Pretorius Pretorius says:

      Add jacob zuma and julias malema and elias magashule and the whole parliamanent and every other anc deployee to the list. The tax rate for law abiding taxpayers can then be reduced, which would lead to growth in the economy and reduction in unemployment.

  • Craig A says:

    9% of the population paying taxes?? How can that be sustainable?

    Why not go after the ‘tenderpreneurs’ who haven’t paid a cent is taxes and haven’t delivered a cent of services either. Unfortunately, its too much hard work and they are protected by their mates in government. The average employed sucker is footing the bill again! A better life for all?

  • Chris Green says:

    Hhhmm !! DM looks like you’ve scored an OWN GOAL on this one.

    I’m sure 100% of the comments submitted are from compliant tax payers – there’s a survey in itself!!

    Now, put it on the block and respond to all of us in another appropriate article, with answers.

  • Bruce Anderson says:

    One thing that burns my butt is this new trend of corporate actions of JSE listed companies (recently Billiton, Naspers/Prosus (as far back as Mediclinic) where, without disposing of ones shares (i.e. no cashflow)), a capital gains tax event is deemed. As a private sector person who invests with a long term view to ensure financial independence in retirement, this constant pillaging is eroding my (and others) long term investment asset base. I have no problem meeting my responsibilities as a taxpayer but I find this an over enthusiastic policy lacking the fairness principle. In my opinion its a prejudical practice.
    All this while a large portion of the value extracted (tax) is consistently used for purposes that are corrupt or wasteful.
    The addressing of the irregular expenditure side of the equation would relieve significant pressure on the income side and perhaps the principled (ethical) practices could (should) be wound back.
    (Or is SARS indirectly trying to push savers into products with financial institutions so that there is better indirect control?)
    Just a gripe from part of the shrinking pool.

  • Madelein Jansen says:

    I was hoping SARS would share the prospects of catching tax-evading individuals by scoping the clientele who visit any of those high-end stores in Mall of Africa. It doesn’t take a genius to consider how ‘fishy’ it is when customers take out cash to pay R80k for their set of new Armani suitcases.

  • Peter Worman says:

    I hope SARS reads the suggestions mentioned below. How about investigating a notorious KZN taxi boss who owns and operates thousands of taxi’s and Durban bus service. I would love to know if he pays any tax at all except the fuel levy

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