The South African Revenue Service collected R1.855 trillion in the fiscal year through March which was almost R9 billion more than the National Treasury’s revised estimate in its March 12 budget. CNBC Africa’s Sally Sethole is joined by SARS Commissioner, Edward Kieswetter for more.
Thank you so much for joining me, sir, today. I think firstly, I just want to ask what are your highlights for the 2024-2025 fiscal revenue that we had today and also were there any surprising trends from last year? Well, first of all, thank you for the opportunity and first of all, we are exhausted. It's been a tough year and people forget very quickly the context within which revenue estimates are modelled. So a year ago, the minister would have said that he estimates the revenue to be R1.863 trillion but that assumed the economy would grow at a particular rate. Within that, there are specific defined variables. One, for example, is that the wage bill would grow by about 8.4% whereas in fact the wage bill only grew by 4.6%. Secondly, we assumed that imports would grow by 6%. A year later, we know imports is actually contracting by about 1.3%. Similarly, we thought fuel consumption would increase and in fact fuel consumption has decreased by more than 10%. All of these have direct revenue consequences because the collection of taxes is just a correlation of what happens in the economy. Now, when the minister then announced in October, then announces a lower revenue target, what is that built on? Well, it's built on the now updated knowledge that the economic variables have moved against us and in the first half of the year is what brought about that shift from 1863 to 1841. The second half of the year was better and the most important positive variable was the introduction of the two-part system. We know now that a total of over 47 billion was paid out into the economy and an additional revenue collection initially estimated to be about 5 billion in the end was over 11 billion. That was a positive variable which wasn't known a year ago, certainly not to the extent that it manifested. And then there was also then the knock-on effect of the 47 billion that finds its way into the economy and fuels consumption positive. But the most important variable is the focused administrative actions taken by SARS. That has resulted in a total of 301 billion Rand that would not have been in the fiscus were it not for administrative effectiveness and efficiency. That's a growth of more than 15% year on year and contributes to 16.8% of the total revenue. So 301 billion would not have been in the fiscus and therefore when we announced 1855 in that is 300 billion that comes directly from the administrative actions of SARS. That for me is the biggest positive that has allowed us to compensate for a declining economy and in fact deliver almost 9 billion more than what we expected. Continuing the conversation on the positive trends that you've seen in the revenue collection, what about the budget that has been allocated by the finance minister to SARS? How is the budget going to now help you or what kind of impact is it going to have on your operational strategies? Our strategy remains the same. But what the additional funding does, so next year the minister has allocated 2 billion Rand for a focused debt recovery drive that we will embark on and secondly a further 500 million to begin to invest into the modernization of our systems. We are fairly confident that the 2 billion as part of the revenue recovery program will add between conservatively between 20 and ambitiously 50 billion of additional revenue that would not be in the fiscus had we not pursued it. We have in this year built up a solid business case and we have demonstrated that in a ring fence project at a cost of just over 300 million Rand we were able to resolve an additional 650 or thereabouts of debt cases that yielded more than 18 billion Rand of additional revenue. So we know that the evidence is there that with a focused drive on debt collection, on outstanding returns and other revenue recovery programs that we can go a long way to compensate for an adverse economic climate in which we work. I'm being told that I'm running out of time but before I let you go, I think it's very important to talk about the proposed VETAG and most taxpayers are seeing a challenge and also industry experts. Do you foresee any challenges in terms of like taxpayers with their compliance? I think firstly the final decision will be made by parliament and that's part of our democracy. Vigorous debate and the final decision. But here is what we know. Firstly that taxpayers and particularly vulnerable and middle class families already find themselves in financial distress. So of course any increase in taxes will have a direct impact on the disposable income of middle class and poor families. To compensate for that in part, the minister has announced certain zero rated VAT products and we must track that closely to make sure that that benefit actually passes on to people for whom it is meant. Our real concern over time is whenever there is a tax hike, we see the challenge from an administrative compliance perspective because taxpayers, many of them, are determined to minimize their tax contribution. And so for example in VAT, we have seen that notwithstanding the historic increase in VAT, the last one from 14 to 15%, the effective tax rate has remained largely unchanged. So I think these are just a combination of complexities and factors that any minister of finance must take into account when he or she considers a tax increase. Our mantra is to say a more appropriate investment into the revenue administration and the collection efficiencies will provide that incremental revenue to the minister of finance and take significant pressure off the fiscal framework.
Theme: South African Revenue Service's Exceedance of Revenue Target in Fiscal Year 2024-2025
The South African Revenue Service (SARS) has reported a significant achievement in revenue collection for the fiscal year 2024-2025, surpassing the National Treasury's revised estimate by almost R9 billion. In an interview with CNBC Africa, SARS Commissioner Edward Kieswetter discussed the highlights and surprising trends from the past year's revenue performance. Kieswetter attributed the success to various factors, including the impact of economic variables, administrative effectiveness, and focused strategies implemented by SARS. Kieswetter highlighted the challenges faced in modeling revenue estimates amidst shifting economic conditions. He explained that factors such as slower wage bill growth, declining imports, and reduced fuel consumption had direct consequences on tax collection. Despite these challenges, Kieswetter emphasized the positive impact of initiatives like the two-part system, which injected over R47 billion into the economy and boosted revenue beyond initial projections. Furthermore, Kieswetter praised SARS' focused administrative actions, which led to the recovery of R301 billion that would not have been available otherwise. This 15% year-on-year growth in revenue contributed significantly to the overall collection, accounting for 16.8% of the total revenue. Kieswetter credited the administrative efficiency of SARS for enabling the agency to exceed revenue expectations and deliver R1.855 trillion in the fiscal year. Looking ahead, Kieswetter discussed the budget allocation by the finance minister to SARS, which includes R2 billion for a debt recovery drive and R500 million for system modernization. He expressed confidence that these investments would generate additional revenue ranging from R20 billion to R50 billion. Kieswetter cited a successful debt resolution project that yielded R18 billion in additional revenue as evidence of the potential impact of focused strategies on revenue recovery. In response to questions about the proposed Value-Added Tax Adjustment Grant (VETAG), Kieswetter acknowledged concerns from taxpayers and industry experts. He emphasized the potential impact of tax hikes on middle-class and vulnerable families, noting the importance of monitoring the implementation of zero-rated VAT products to ensure benefits reach the intended recipients. Kieswetter also highlighted the compliance challenges associated with tax increases, stressing the need for improved investment in revenue administration and collection efficiencies to alleviate pressure on the fiscal framework. Overall, SARS' performance in surpassing revenue targets reflects the agency's resilience in adapting to dynamic economic conditions and implementing effective strategies to maximize revenue collection. The success achieved in the past fiscal year sets a positive trajectory for continued growth and sustainability in revenue generation for South Africa.
"Our mantra is to say a more appropriate investment into the revenue administration and the collection efficiencies will provide that incremental revenue to the minister of finance and take significant pressure off the fiscal framework."
SARS, revenue collection, South Africa, fiscal year, economy, tax, CNBC Africa