Treasury intends to raise an additional R28bn in revenue, but there are concerns about the ability of the South African Revenue Service (SARS) to collect this, according to analysts.
Pravin Gordhan will deliver his national budget speech on February 22 2017. Analysts have been sharing their views on how Gordhan will raise the revenue, but the role of SARS in collecting this is equally important.
“The ability to fund this country’s shortfall will depend entirely on SARS’ ability to collect whatever gets put in place. Collection depends on an effective SARS that can focus on its objective without being sidetracked,” said Eugene du Plessis, director and leader of tax at Grant Thornton.
He added the organisation recently lost several high-ranking members. “Hopefully it can remain effective given these circumstances.”
This may be the most difficult and interesting budget since the advent of democracy, said Kyle Mandy, tax policy leader at PwC. The economy is struggling with poor growth and revenue collection is under pressure.
Guidelines to deal with Base Erosion and Profit Shifting as set out by the Organisation for Economic Cooperation and Development will remain in focus, said Mandy. This involves avoiding tax by shifting profits to low or no-tax locations. Gordhan may make announcements on the continuation of reforms to address this.
A signing ceremony by Cabinet is expected later this year for a multilateral instrument to amend close to 2 000 tax treaties.
Transfer pricing is a big component of Base Erosion and Profit Shifting and initiatives to clamp down on that have been applied by SARS and will continue, Mandy added.
However, SARS is facing capacity constraints and challenges in the transfer pricing space, as team members have been lost. Two years ago the commissioner announced 25 additional staff would be appointed to the transfer pricing team, but these numbers have continued to shrink rather than grow.
“The real challenge [for SARS] is to get the necessary resources and capacity to properly enforce transfer pricing legislation.”
Mandy said illicit trade, whether cross border domestic evasion of taxes, remains a concern.
“SARS is also concerned around the cash economy, or the informal economy, and the extent of tax gap in that space.” There are hopes that closing these tax gaps would remain part of SARS’ strategy going forward.