The South African Revenue Service (Sars) collected a record gross amount of R2.16-trillion by the end of March.

It paid out refunds of R414-billion to taxpayers, which is the highest ever in refunds compared with the R381-billion paid out in the prior year and representing growth of 8.6%.

This brings the collected net amount to R1.74-trillion, which is almost R10-billion higher than the revised estimate and R54-billion more than last year’s R1.69-trillion, the tax agency said on April 2.

Tax revenue collections have increased from R114-billion in the 1994/5 financial year at a compounded annual growth rate of 9.9% and an average tax-to-gross domestic product (GDP) ratio of 22.2% to the end of March this year.

Further, Sars made value-added tax (VAT) refunds of R343-billion, representing growth of 7.5% over the prior year, said Sars Commissioner Edward Kieswetter.

Total refunds this year represent about 6% of GDP. It is, therefore, pleasing that R120-billion of the refunds were directed to small, medium-sized and microenterprises (SMMEs) and R37-billion of the refunds benefitted individuals. This is good when business and individuals remain cash-strapped, he said.

Further, in the period under review, Sars was able to prevent the outflow of R101-billion of impermissible refunds.

Compared with the 2022/23 fiscal year, total tax revenue increased by R54.2-billion, or 3.2%, driven by personal income taxes of R49.5-billion, up 8.2% year-on-year, on the back of higher than estimated compensation of employees, as well as higher domestic VAT of R39.3-billion, up 8.1% year-on-year.

Net personal income tax, which accounts for 37.3% of total revenue, grew by R49.5-billion, or 8.2%, in 2023 to 2024, as employment improved year-on-year and average wage settlement rates improved from an yearly average of 6% in 2022 to 6.3% in 2023.

Pay-as-you-earn collections from incentives and bonus payments, predominantly from the finance sector, also boosted personal income tax revenue, Kieswetter said.

Further, net corporate income tax (CIT) contracted by R31-billion, or 8.9%, in 2023 to 2024, while the mining sector recorded a decline of R42-billion, which is 49% lower year-on-year. CIT collections accounted for 18% of total revenue.

The CIT contribution of large businesses contracted by 17.5%, while the contribution from small businesses increased by 8.8%.

The net VAT growth of R25.4-billion, or 6%, is largely attributable to domestic VAT, which rose by R39-billion, or 8.1%, and import VAT, which was 3.9% higher by R10-billion, as well as higher outflow of VAT refunds R23.9-billion, or 7.5% higher.

COMPLIANCE PROGRAMME
The Sars Compliance Programme uses data, artificial intelligence and machine learning algorithms to successfully counter criminality and wilful non-compliance. These systems also ensure that no legitimate refunds are denied, while preventing impermissible and fraudulent refunds.

The compliance programme contributed a preliminary R293.7-billion by the end of March. This is an increase of R61.9-billion, or 26.7%, from the previous year’s R231.8-billion.

The organisation is realising its Vision 2020-2025 of a smart, modern Sars that can be trusted and admired by all, Kieswetter said.

Through the compliance programme, R91.3-billion debt was collected from 2.6-million cases, including R420-million from 895 000 outstanding returns. Additionally, voluntary disclosures contributed R3.5-billion, made up of 1 435 concluded applications.

The compliance programme also saw Sars collect R19.3-billion from provisional taxpayers who underpaid their taxes, which was from more than 28 000 cases from large businesses, and individuals and SMMEs.

Specialised audits and investigations under the programme contributed to revenue leakage prevention of R5.7-billion, and audits from Sars’ large business and international (LBI) segment contributed R23-billion from 341 cases.

Meanwhile, also under the compliance programme, the investigations of syndicate crimes contributed R20.1-billion and executed 147 preliminary investigations made up of preservation orders and collapsing one tobacco and gold illicit financial flow scheme, the commissioner said.

Additionally, the tax agency completed 230 000 customs compliance inspections and interventions, which was lower than the prior year of 235 000 inspections.

A total of R8.4-billion in customs-related assessments were raised leading to the issuance of letters of demand.

“We collected outstanding debt totalling R2-billion. We curbed impermissible claims related to the VAT export incentive scheme totalling R92-million, and also completed 6 550 customs seizures totalling R6.6-billion.”

Further, the detailed work undertaken through the management of risk, comprising revenue leakage prevention, fraud, impermissible refunds and debt equalisation, is critical. This work alone has contributed R101-billion and completed 1.8-million cases.

“We remain concerned though. The refund risk remains stubbornly high, and Sars will continue its efforts to manage this,” said Kieswetter.

Sars is also making significant inroads in its litigation strategy which resonates with its strategic objective that seeks to provide certainty and clarity for taxpayers ensuring proper interpretation of tax or customs laws, he added.

“More than five years ago, State capture left Sars an organisation in distress and severely compromised. We embarked on a journey to re-imagine the organisation. Sars is succeeding in its strategic intent of building a tax and customs system that is based on voluntary compliance and sharpening its capability aimed at detection and deterrence of wilful non-compliance.

“The rebuilding of Sars entailed broadening the tax base, instilling and improving a culture of voluntary compliance and fiscal citizenship, and creating a seamless intersection of people, data and technology to optimally deliver on our mandate, as well as working with all stakeholders in the tax ecosystem and fostering trust and confidence on Sars,” Kieswetter said.

During the past year, the tax register grew by 411 000 companies, of which 1 500 contributed R214-million in gross revenues in the year under review. Additionally, 39 900 new employers voluntarily registered for PAYE, of which 19 000 contributed R2.7-billion additional tax, totalling R3.4-billion in the year under review.

Further, the tax register grew by 57 700 new VAT vendors of which 14 200 contributed R4.4-billion in gross revenues in the year under review. The tax register also grew by 1.1-million individuals.

“We are augmenting the work of our employees, with the investment in data science, technology, and artificial intelligence, towards the goal of making the fulfilment of tax obligation a seamless process,” said Kieswetter.

COMMENTARY
The achievement of R1.74-trillion represents year-on-year growth of 4.6% against a nominal GDP growth of below 1%, tax professionals controlling body the South African Institute of Taxation (SAIT) CEO Professor Keith Engel pointed out.

“The strategy has been not to raise taxes on the innocent, but to expand the tax base on the guilty. Looking further at the targets, the strategy has been working.

“There has been growth in the number of taxpayers with a focus on high-net-worth individuals, voluntary compliance has grown from 61.6% to 63.9% and there is also an attempt to eliminate failure to disclose through third-party,” he said.

The SAIT wishes to applaud Sars on successfully stopping R101-billion in fraudulent refunds, which led to prosecutions.

“Escaping the taxman is becoming more difficult,” he added.

However, the SAIT is concerned by a number of factors that hinder revenue collection in South Africa.

“Among others, electricity supply and loadshedding continue to affect business growth and profitability, and logistics challenges at South African ports continue to affect trade and the country’s economic growth. Increased collections are best achieved from economic growth,” Engel emphasised.