SA REVENUE SERVICE: SA’s trust deficit

State capture, corruption and an accountability deficit have resulted in even upstanding taxpayers looking for ways to avoid paying their taxes or undercut the taxman.

SA Revenue Service (Sars) commissioner Edward Kieswetter says public confidence in the government has taken a knock over the past decade, and it has yet to properly recover.

It’s a significant problem, given that the budget shows tax revenue is expected to be R63.3bn lower than projected.

In an interview with the FM, Kieswetter says three factors influence revenue: the health of the economy; the ability of Sars to collect revenue; and the level of confidence the public has in the tax authority.

"All three factors are currently working against us," he says somewhat ominously. "If you look at the economy, you will hear [of] another downward projection in economic growth, you will hear about retrenchments, you will hear [of] lower-than-expected consumer retail sales, you will hear [of] production interruptions as a result of load-shedding."

The flailing economy has a direct effect on revenue collection: it influences VAT receipts; pay-as-you-earn tax suffers through retrenchments; and profits decline and dividend payouts fall.

It’s a vicious cycle, Kieswetter says.

"The point is that the economy is not working with us," Kieswetter says.

Confidence in the government plays into the vicious cycle: when confidence declines, so does tax compliance.

Kieswetter says that when taxpayers see their hard-earned money spent frivolously, it affects their confidence in the government, and willingness to fund its activities.

"I am making an unapologetic and sincere plea to all my colleagues [in government] to be better stewards of the resources that come to us," he says. "We have to shift from a vicious to a virtuous cycle."

Confidence is a big concern for Kieswetter, who just 11 months ago took over Sars from the controversial Tom Moyane.

Under Moyane’s watch, Sars found itself at the heart of the state capture project. The agency’s R100bn loss in revenue by the end of his four years at the helm was due, in large part, to the manner in which he repurposed the institution. He left Sars hobbled, unable to perform its key mandate — to collect the revenue required to deliver services to citizens.

The details of how Moyane purged skilled Sars managers, used the institution to benefit politically connected individuals and neutralised its capacity to tackle the illicit economy and organised crime were laid bare at the commission of inquiry into the tax agency, chaired by retired judge Robert Nugent.

The lack of consequences for those responsible for state capture is now hitting hard.

A report by Citizen Surveys, released this week, shows trust in Sars dropped to 54% in the third quarter of 2018, from 62% after President Cyril Ramaphosa took office in February that year.

"When Sars confirmed that it intended to investigate the tax evasion claims arising from the Zondo commission, trust improved. However, as no significant action was taken subsequent to last year’s general elections, trust in Sars dropped again, ending the year at 57%," Citizen Surveys says in a statement.

Worryingly, levels of compliance among honest taxpayers are slipping.

"People are saying: ‘Will there be consequences for those who have perpetrated state capture? We are waiting for prosecutions — because if senior politicians and state-owned enterprises executives are getting away with it, then why do we pay taxes?’" Kieswetter says.

"They begin to feel morally justified to withhold their taxes or at least to fiddle with them."

What is also probably keeping Kieswetter up at night is a "scary" proliferation of criminal activity, including underdeclaration of tax, and VAT and income tax fraud.

But he warns of consequences: on Friday, for example, Cape Town businessmen Luis Filipe Duarte D’Almeida Fernandes and Nazmien Warner were sentenced to an effective 17 and 16 years in jail each after pleading guilty to 880 charges ranging from fraud to racketeering and corruption, including for a R115m VAT scheme.

"The point is that we are seeing an uptick in VAT fraud — companies that are created not for the intention of trading, but for the intention of fleecing the system. You find fictitious expenditures being created, you find interconnected parties that target each other and provide invoices but you find there is actually no exchange of goods and services," he says.

"In the public domain you see a proliferation of criminal activity that blatantly fleeces the system. Many employers are not registered with Sars as employers, but they collect income tax from their employees and then don’t pay it over to Sars, which is criminal … Then you see examples of just aggressive tax scamming and schemes and arrangements."

It’s a substantial cost to the fiscus, says Kieswetter, who estimates that "significantly upward of R100bn" is being lost due to criminal and illicit economic activities.