In a media statement from 07 October 2020, Commissioner of the South African Revenue Service (“SARS”), Edward Kieswetter announced a deficit of R800-million, which shortage, he stated, needs to be recovered in order for SARS to operate efficiently again. 

Kieswetter further cited that there are around 800 critical vacancies in the organization that need to be filled.

With what looks like history repeating itself, SARS has just recently closed applications for 250 Call Centre Consultant vacancies, once more evidencing the revenue authority being under-manned, which, over the course of the Covid-19 pandemic, we have seen first-hand having a devastating effect on taxpayers seeking to be voluntarily compliant, with processes which would usually take 6 – 8 weeks, now taking 6 months, and it simply boils down to the fact that even though SARS employees are capable, there are simply not enough hands on deck.

A Drop in the Ocean, or a Whirlpool of Debt

What is however of greater interest, is the annual Tax Statistics for 2021, showing a 7.8% decrease from the prior year, in the total tax revenue collected. While this percentage may sound like a drop in the ocean, it translates to a decline of approximately R106-billion of total tax revenue collected by SARS.

This is odd, as SARS has in the recent months, greatly increased the pressure of its collection measures, with final demands (“the demand”) being sent to taxpayers for as little as R5 300.00, something which was previously unheard of.

The follow-through on these demands has also become more drastic, with taxpayers ignoring the demand, as they previously would, and waking up one morning with a large hole in their bank balance.

It must be emphasized that this is known as a 3rd party appointment and is expressly provided for as a collection measure in the demand. It is not fraud, nor a bank error which the taxpayer may think they can rectify but is SARS exercising their increased collection powers.

Forecasting, or Foreshadowing

In light of this, and the recently released figures, coupled with SARS’ 2022 Recruitment drive getting off to a big start, it begs the question; was the reduced collections due to a Covid-19 afflicted economy, or SARS’ own internal inefficiencies?

In the 2021 Medium Term Budget Policy Statement Speech (“2021 MTBS”), which took place on 11 November 2021, it was noted that South Africa’s counter-cyclical fiscal policy means the government has increased its deficit to compensate for an under- performing economy – government spent more than it received from tax revenue collections.

A figure of R4-trillion was cited as the debt incurred by the government, in servicing its debts.

The 2021 MTBS went further to note that SARS’ Collections have performed beyond expectation in the short-term, with the “Revenue for 2021/22 is now estimated to reach R1.5-trillion, compared to R1.4-trillion at the time of the 2021 Budget in February. This is an upward revision of R120.3-billion.”

This reality falls short of the prediction, but it may very well be attributed to the revenue authority itself, with the Tax Ombud Annual Report 2020/2021 (“the Ombud Report”), noting numerous failures on SARS’ part, including failure to even respond to debt relief mechanism requests, such as a Compromise of Tax Debt, or Deferral of Payment application, as provided for by the Tax Administration Act 28 of 2011 (“TAA”), both of which aid in providing relief to the taxpayer, which is quite often just enough for the taxpayer to remain afloat. But generally, one mechanism always trumps the other, and that is the Compromise.

The First-Mover Advantage

In order to protect yourself from falling victim to the deficit to be filled, it remains the best strategy that you always ensure compliance. Where you find yourself on the wrong side of SARS, there is a first mover advantage in seeking the appropriate tax advisory assistance, to ensure the necessary steps are taken to protect both yourself and your bank balance from paying the price for what could be the smallest of mistakes. However, where things do go wrong, SARS must be engaged legally, and we generally find them to be agreeable to the utmost where a correct tax strategy is followed.

As a rule of thumb, any and all correspondence received from SARS should be immediately addressed, by a qualified tax specialist or tax attorney, which will not only serve to safeguard the taxpayer against SARS implementing collection measures, but the taxpayer will also be correctly advised on the most appropriate solution to ensure their tax compliance.

Written by Jashwin Baijoo, Legal Manager, Africa Tax and Compliance at Tax Consulting SA