On Tuesday May 5, SARS Commissioner Edward Kieswetter detailed improvements in the tax authority’s operations and its proactive response to COVID-19. However, he painted a gloomy picture of national revenues.
“It’s sadly ironic that SARS has worked towards reversing its poor collection performance of the past only to be faced with an economic outlook comparable to the Great Depression,” said Ettiene Retief, Chairman of the National Tax and SARS Committee at the South African Institute of Professional Accountants (SAIPA).
According to Kieswetter, tax and customs revenue collection is being negatively affected by several factors, including the country’s poor economy before COVID-19, weakened further by rating downgrades; COVID-19 tax relief measures; the effects of the phased lifting of the national lockdown on economic activities and capacity; and the overall impact on compliance.
He explained that a great concern was reduced economic capacity due to business closures and job losses. According to Stats SA, business liquidations for February 2020 increased 12.3% compared to February 2019, while business insolvencies were 13.9% higher in January 2020 compared to January 2019. Total retrenchments for April 2020 were just over 20,000, a 1622 (or 9%) increase from last April.
“These directly affect taxable incomes and therefore revenue collection levels,” Retief said.
Three modelled scenarios predict local GDP outcomes of -5.4% to -16% for the current year. Kieswetter said that SARS’ initial estimates are that revenues will be 15% to 20% lower than announced in the February Budget Speech, amounting to an under-recovery of R285 billion.
SARS’ preliminary assessment of revenue performance for April showed a R9 billion under-recovery, a year-on-year decline of 8.8%. This was the result of a drop in prior year performance of PAYE by 5.2%, domestic VAT by 4.3%, import tax by 19.7%, specific excise duties by 54.7%, and corporate taxes by 55.4%. VAT refunds were 12.5% lower than estimated due to fewer credit returns this year.
COVID-19 tax relief measures could cost SARS much more than the initially predicted R70 billion, said Kieswetter.
Kieswetter also highlighted the need for employers and employees to remain compliant during the upcoming 2020 filing season for personal tax, which he described as more important than ever.
“SAIPA urges employers to ensure their employee tax submissions are current and that all PAYE has been paid to SARS to support economic recovery,” says Retief.
Businesses seeking tax relief, government aid or business rescue should contact a Professional Accountant (SA) to maximize the chances of their applications being successful.