Sars’s digital initiatives have improved tax compliance, but challenges persist with the tax base and economic growth.
The National Treasury and the South African Revenue Service (Sars) recently jointly published the 16th annual edition of the Tax Statistics. The 2023 edition provides an overview of tax-revenue collection and tax-return information for the 2019 to 2023 tax years, as well as for the 2018/19 to 2022/23 fiscal years. These aggregated statistics are compiled from Sars’s registers of taxpayers and from tax returns.
Tax experts Louis Botha and Nicholas Carroll from Cliffe Dekker Hofmeyr shared insights on these statistics.
Here are some key points:
Tax statistics and digital initiatives
In the 2022/23 fiscal year, Sars collected R2.07 trillion in gross tax revenue (R183 billion or 9.7% more than in the prior year). According to the National Treasury and Sars the growth in tax revenues was supported by a broad recovery in tax bases and higher-than-average commodity prices.
The statistics also show that compliance revenue secured from focused activities and efforts by Sars yielded R231.8 billion for the 2022/23 fiscal year, R16 billion or 7.5% more than in the preceding year.
Recently, Sars has pushed towards the digital consolidation of accounting for tax via its eFiling platform to create a single portal through which taxpayers can manage their tax affairs.
Read: Nowhere to hide as Sars ramps up its use of smart tools
Carroll says that barring certain “teething” issues, this has created a more streamlined system for taxpayers to declare their tax, making compliance an easier task.
“That being said, Sars has also focused on tax compliance, and in line with this it has more actively started using third-party data, such as data from financial institutions, employers, fund administrators, and data from foreign tax authorities received under the common reporting standard (CRS).”
According to Botha, the solar tax credit that has been made available to homeowners until 28 February this year, also requires that the third parties conducting solar installations must report information regarding the installations to Sars. He says Sars will likely use this party data received to verify solar tax rebate claims made by individuals when the 2024 tax season starts.
In the past two budgets, additional funding has been allocated towards improving tax administration.
“It appears that Sars has been able to increase its collection efforts as a result of this,” says Botha.
In November last year, South Africa, along with 46 countries and two UK overseas territories, committed to promptly adopting a new global standard for the automatic exchange of tax-related information. This framework, known as the Crypto-asset Reporting Framework (CARF), is set to be implemented to facilitate exchanges starting in 2027. CARF’s objective is to enhance transparency in crypto-asset transactions by enabling the annual automatic exchange of information among participating jurisdictions where tax residents are involved in such activities.
Read: South Africa undertakes to implement Crypto-asset Reporting Framework
The FSCA is currently analysing 128 applications for crypto asset service provider licences which will bring those, who as a regular feature of their business, renders crypto asset financial services into the regulatory fold.
Read: FSCA discloses how many crypto licence applications it is processing
Carroll says that pursuant to crypto asset service providers being required to register with the FSCA, it is possible that such service providers will also be required to submit third-party data.
“That would likely assist Sars’ efforts in enforcing compliance with tax laws in respecting of persons conducting crypto asset related transactions,” he says.
Carroll further points out that in practical terms, the use of third-party data can also be seen in Sars pre-populating certain individuals’ income tax returns, which in turn has facilitated innovations such as the use of auto-assessments. He says, together, this has simplified compliance procedures and led to an increase in overall compliance, making a taxpayer’s financial matters more transparent to Sars.
Considering the above, Botha says it is likely that Sars will look at further digital innovations, including the use of third-party data, to enforce compliance.
“Voluntary compliance is still encouraged and persons wishing to regularise their tax affairs would be well advised to make use of the voluntary disclosure programme to do so,” says Botha.
Taxpayer base and challenges
Personal Income Tax (PIT) remains the largest contributor to tax revenue at 35.7%. Value-added Tax (VAT) comes in second at 25.0% and Corporate Income Tax (CIT) third at 20.6%.
As of March 31 2022, the PIT register grew annually by 4.1% to 24.8 million individuals, reaching 25.9 million by the end of March 2023. Out of the 7 068 925 taxpayers expected to submit returns for the 2022 tax year, 84.7% (5 989 787 taxpayers) were assessed.
The latest Census results show that the South African population grew to 62 million in 2022.
Carrol states that it is widely accepted that South Africa has a small tax base in comparison to its population, “and this has been a cause for concern”. Botha says one of the potential reasons is the level of economic inequality in South Africa.
“It is impossible to conclusively say whether registered taxpayers are sufficient to support the growing population, but it does appear from the projected figures for the 2023/2024 fiscal year (ending on 31 March) released thus far, that the number of taxpayers (both individuals and corporates) is likely insufficient.”
Recognising the small tax base, Sars has focussed on bringing unregistered businesses and individuals (who are earning above the taxable thresholds) into the tax base. The revenue service has also increased its level of enforcement in respect of companies liable for customs and excise tax, including companies in the tobacco and cigarette business.
Botha adds that it is also natural that tax revenue can only increase so much without economic growth.
“An increase in economic growth, which has stalled in recent years, would go a long way to improving the situation,” he says.
Company Income Tax trends
Statistics for Company Income Tax (CIT) show that out of the 1 057 040 companies assessed by 30 September 2023 for the 2021 tax year, 20.7% declared a positive taxable income, 52.6% had taxable income equal to zero, and the remaining 26.7% reported an assessed loss.
Of the companies assessed, 432 large companies (0.2% of the companies with positive taxable income) had a taxable income of more than R200 million and were liable for 67.1% of the CIT assessed.
The financial intermediation, insurance, real estate, and business-services sector accounted for 253 241 (24.0%) of the assessed companies and was liable for 30.8% of the CIT assessed, contributing the most among all the sectors.
Carroll says the trend of a few companies carrying a large portion of the CIT burden is not uncommon, “and should not in of itself be cause for alarm when assessing the financial health of corporate South Africa”. However, he says that these statistics do indicate the industries that are proving successful in the current economic climate, despite the challenging economic growth conditions faced in South Africa.
“Notably, these statistics are for the 2021 tax year, which fell during the height of the Covid-19 pandemic. The effect of this pandemic on the economy and companies cannot be ignored therefore when interpreting these statistics,” he says.
Value-Added Tax (VAT) insights
In 2022/23, 80.8% of active Value-Added Tax (VAT) vendors were companies and closed corporations. These vendors contributed 92.6% to Domestic VAT payments and received 92.8% of the VAT refunded. Although individuals (sole proprietors) composed 11.5% of active VAT vendors, they contributed 1.9% to Domestic VAT payments and received 0.7% of the VAT refunded.
To put these statistics into perspective, Carrol says it is necessary to understand the principle on which the VAT system operates.
He explains that on a conceptual level, VAT is levied on consumption.
“This means that a portion of a purchase price paid by a consumer is attributable to VAT. The exceptions to this are where products are exempt from VAT or zero-rated. Where a consumer themselves is a VAT vendor (for example, in the business of selling goods/providing services on which they have to account for VAT), then that consumer is able to claim the VAT paid for goods and services procured in the course of making its own taxable supplies.”
He says this should generally leave vendors in a VAT-neutral position.
“As a result, the VAT burden is carried by the ultimate consumer, such as when a person buys groceries and VAT (at the rate of 15%) forms part of the purchase price. Therefore, there is not much significance in the VAT statistics – they merely bear out the conceptual mechanics of VAT.”
Botha notes that VAT has gained attention lately after the announcement in the medium-term budget policy statement (MTBPS) hinted at possible additional tax measures. This has led to speculation about potential increases in existing taxes, including VAT.
Additionally, debates around the new National Health Insurance Bill illustrated the required funding for this Bill with reference to, for example, the percentage increase in the VAT rate that would be required to fund the operation of the Bill.
At present, South Africa has a low VAT rate when compared internationally, and with other developing African countries. For example, Kenya and Mozambique have a VAT rate of 16%.
“Considering that South Africa’s VAT rate was increased from 14% to 15% only a few years ago and that VAT is a regressive tax (for example it is charged at a flat rate which does not take into account the specific financial circumstances of the end consumer), there is significant opposition to an increase and an increase will likely be unpopular with many South Africans,” says Botha.
To read the Tax Statistics 2023 main document, click here.
