Mazars executive on the tax problem facing South Africa
Weak economic activity during the Covid-19 crisis is likely to leave the South African Revenue Service (SARS) with a complex tax collection problem at the end of the year, according to Mazars South Africa Tax Consulting Director David French.
SARS was already dealing with dwindling revenues before the crisis, caused by a combination of a slow economy and a tax defaulting problem. The crisis and its various economic repercussions have only intensified this problem, according to French, who described a variety of complex issues with which SARS is faced.
“It looks like South Africa will get some reasonable funding from institutions like the World Bank and the International Monetary Fund, but on the collections side, the loss to the fiscus is going to be huge,” said French. He fears that the additional collection might well fall on the average taxpayer.
Where income tax has been a wavering source of revenue in the past, excise duties such as the levy on fuel or alcohol and tobacco have been trusty sources in the past. However, amid an overall crunch on spending, even collections from these segments is expected to be below par, giving SARS a significant problem.
Meanwhile, the unique circumstances under Covid-19 present a puzzle on how exactly to go about tax collection. “There may be the question of whether any expenditure during this lockdown time would be taxable, because any money spent by companies may not be in the production of income – which poses a risk to taxpayers,” explained French.
“Also, how aggressive is SARS going to be about collecting these taxes, given that taxpayers are likely to be in dire straits?” he added, highlighting the challenging questions that SARS must answer in the coming months.
The organisation will have some revenue to collect from what little essential economic activity has been taking place under the circumstances. However, he points out that the challenging economic conditions might force businesses to apply for tax deductions, some of which might even extend to future incomes.
As a result, French argues that there might be long term revenue repercussions for SARS if it does now develop a comprehensive strategy for the near future. In his view, it is likely that a significant portion of the tax burden will fall on the taxpayer due to hikes, a strategy that SARS has seriously considered previously.
