South African taxpayers’ hands are tied. File picture: Andrea Piacquadio, Pexels
TAX FREEDOM Day is a reference to a day that a country has earned enough money to pay for running its government in a financial year, and it is estimated to be on May 14 this year. That is two days later than last year’s prediction.
According to Garth Zietsman, a statistician who analyses and writes for the Free Market Foundation, the prediction is based on the intended level of tax collection for the central government mentioned in the budget speech. “Typically, the actual figure – which is the general government revenue as a percentage of GDP from the South African Reserve Bank Quarterly - turns out to be 30% more than the intended figure for central government.”
While the increase from last year seems quite modest, it is higher than the long-term upward trend, of 1.12 extra days per year, over the last 23 years. At the long-term rate of increase each new generation can ‘look forward’ to an extra month working off the tax bill every year, he said.
This is despite the South African Revenue Service (Sars) collecting over R1.686 trillion tax revenue for the fiscal year to end March 31, falling just shy of the government's R1.692 trillion estimate in the 2022/23 budget, data from the revenue service showed at the beginning of the month.
Sars said while mining volumes had decreased in the last year, higher commodity prices contributed significantly to improved tax receipts. That and a greater focus on compliance efforts and the increased use of advanced technology to do so.
But despite the taxman’s miraculous feat this past year, the wheel of wealth will probably get stuck in the mud of administrative cost and regulatory pricing for now. Not to mention the fact that it has a very concentrated tax base, which is already stretched to the maximum, to work with.
Sars said at the release of its collection figures that ongoing power cuts will have "debilitating" effect on the economy and revenue collection, estimating that the outages contribute to a potential tax revenue loss of R60 billion per annum at a minimum.
And as we sit in the darkness of Stage 6 load shedding, it is pretty obvious that revenue gap is not an absolute. South Africans could face Stage 10 load shedding this winter if Eskom cannot improve its generation capacity, with electricity minister Kgosientsho Ramokgopa recently warning that the power utility expects a shortfall of 8,000MW to 10,000MW.
A further reduction in tax collections can be as a result of various factors, such as reduced business activities, due to low economic growth. The South African Reserve Bank said this month that it expected the domestic economy to grow by just a mere 0.2% this year, a rate which the revenue service said will make it difficult to achieve collection targets for the year ahead.
Consumer confidence and purchasing power is also at an all-time low, with energy regulator Nersa not only approving Eskom’s average base load price increase of 18.65%, but now also asking stakeholders to comment on its proposed guideline for municipalities to increase electricity tariffs by an average 15.1% on 1 July. The recent interest rate hike will further erode taxpayers’ disposable income.
This is despite public confidence in Sars improving, with an internal survey showing an increase from 71.8% in 2021/22 to 76.5% in 2022/23, due to an improvement in operational efficiency, tax morality, tax diligence, accessibility and trustworthiness. Interestingly it measured only 48% in 2019. But how long is such a social cohesive string? Probably until the noose gets so tightly strung, it will tie the hand that feeds it.
And looking at the latest numbers, the most significant contributors to Sars’ positive revenue performance are income taxes (R601.7bn); company taxes (R348.0bn) and value-added tax (R422.2bn), and all of it is dependent on business activity, employment numbers and spending power, none of which is forecast to flourish in the next twelve months.
Tax Freedom Day for the layman, the average Joe and the man on the South African street, will be a longer time off, especially in terms of service delivery and social security, if the status quo continues.
Raising taxes is also not an option. The so-called Laffer Curve , developed by economist Arthur Laffer in the seventies, shows how tax hikes impact revenue. It demonstrates that certain taxes and rates are prohibitive, actually reducing the overall collections by the government. And with so much state corruption and lack of service delivery being the order of the day, and 2024 being an election year, I doubt if there will be any political will to do so.
The only room left to still squeeze is the unobserved economy, which refers to illicit activities, that generate untaxed and unreported revenue, ranging from the under declaration of income in tax returns to illegal imports, organised crime and the drug trade.
And if Sars, recent court cases against Coronation, Capitec and Christo Wiese are anything to go by, the revenue authorities are definitely looking in the right places.
Sars said it had adopted a zero-tolerance approach to non-compliance and has been consistently applying the law, whether it be to a willing or negligent taxpayer.
Experts from Tax Consulting SA said that the high standard of compliance is applied indiscriminately to the average taxpayer, high net-worth individuals and even local celebrities, with the commissioner of Sars, Edward Kieswetter, stating that the entity strives to balance the trade-off between taxpayer service and risk management.
The message is clear: no more tax-free rides. And the days are numbered.