R2trn tax record for the taxman

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JIMMY MOYAHA: The target was R2 trillion, as set by the minister of finance. That target was levied on the South African Revenue Service [Sars] for revenue and tax collections over the last financial year. We’re going to be reflecting on this target with Sars Commissioner Edward Kieswetter and taking a look at whether that target was reached.

Commissioner, good evening. Lovely to have you on the show, as always. Thanks so much for taking the time. [You are] arguably the most over-achieving commissioner we’ve had in recent times. I just had a quick look at the previous collections of the South African Revenue Service, or Sars. Each year under your tenure has exceeded expectations. Now I can safely say that you are an ‘over-achieving’ commissioner, because I’ve had the privilege of knowing that you are but one of more than 14 000 Sars employees that are hard at work to ensure that these targets are met, and the responsibilities that you’ve borne over the last seven years have not been yours alone.

Take us through the year that was and how Sars performed.

EDWARD KIESWETTER: Thank you. Firstly, thank you for the acknowledgement.

We always knew when the minister set us the aspirational estimate … it would be difficult because our economy clearly is sluggish and we’re facing many headwinds. We had a bit of buoyancy from the commodity prices, but very small – R5 billion to our estimate. The real benefit may come through in this year.

And then that also depends on what happens in the war [in Iran] because the disruption of trade routes, the increase in fuel prices and the knock-on effect are still to be determined.

But coming back to Sars, what was really pleasing is that the efforts by the staff [in themselves] contributed R316 billion. That’s when we say our effort to succeed does not require one big thing. It requires many, many little things to go right.

I think that’s the story of an institution that works like a system, as opposed to a set of disconnected transactions. That’s really a reflection of the work of the last seven years.

When I look at the actual taxes, of course the significant contribution still comes from individuals, followed by Vat, thirdly customs, followed by excise.

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Company taxes are actually only R350 billion of the over R2 trillion, and often companies are mentioned as the real heroes. But the real heroes are ordinary people who buy and contribute to Vat, to excise, consumption taxes, et cetera.

So all my appreciation goes to the ordinary man in the street with whom we engage and who makes this contribution.

When you look at companies, though, we see that the financial services sector is still the most significant contributor, followed by the community social and personal services sector. Of course, Customs and Excise is a big contributor – but that’s across all sectors.

And if you look at the mining sector, their contribution this year has been only R25.5 billion, even though the year-on-year growth has been 112%. Given the uptick in the commodity cycles, the absolute contribution is still relatively small.

So we are pretty confident when we say that it was a number of many little things that worked well that ultimately delivered the excellent and, by the way, historic performance, because this is the first time that we’ve crossed the R2 trillion mark.

JIMMY MOYAHA: Commissioner, as we reflect on that record that has been set, you mentioned something around the contributions towards those collections from a commodities boost, from a company’s perspective. I want to get your sense on how much of this has been consistent improvements and compliance improvements – something that you and I have spoken about before, to say that a lot of the adjustments that Sars has been looking at, everything from the modernisation programmes to the added initiatives, has been in an effort to strengthen the institution as a whole and not necessarily rely on one-off collection improvements.

EDWARD KIESWETTER: It’s incontestable, because if it were true that Sars does well only when the commodities boom, why has our performance been consistently improving throughout the business cycle?

That tells you that the revenue performance of Sars is not cyclical, it is structural.

Where does that structural improvement come from? It comes from building a solid operating model that requires the work of diligent, professional and competent people, the deployment of a technology platform that creates an engaging interface between us and taxpayers, and a deep commitment to data science and sophisticated algorithms and AI that we have deployed.

Collectively, that, during the seven years that I have had the privilege to lead Sars, in itself has contributed R1.6 trillion and, within that, over R600 billion from AI risk-detection methodologies that we’ve built here.

Right here at home our teams have built this AI, and that has prevented the outflow of impermissible or fraudulent Vat and other refunds of well over R600 billion.

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If you look at that, following up on over three million individual tax outstanding-return cases for an amount of anywhere from R200 to R800 million – or a billion rand – from conducting verifications, from conducting investigations, cargo inspections and interventions.

What we have seen is that our overall compliance index has gone up by about five percentage points.

And very pleasingly within that our payment compliance now stands at 75%.

So it is the system that has strengthened, and that’s also what gives us the confidence that it is sustainable. It’s not just a flash in the pan or a reflection of the commodity cycle.

Importantly, we have also averted, through incontestable evidence, the need for the minister – at least in the near term – to have to look at Vat increases.

JIMMY MOYAHA: Commissioner, as we close off this collection period on a high at that record R2 trillion-plus mark, I want to get your thoughts on where that figure could have been if we had managed to rein in things like the illicit markets that we’ve been discussing and battling through. This is something I know that has been very close to your focus as the commissioner, as part of the teams that you’ve led, and you’ve emphasised on many an occasion that we’re losing out on revenue because of the illicit markets. Where would this figure have been if those illicit markets had been even a fraction smaller than what they are now?

EDWARD KIESWETTER: Well, the research converges with consensus that the shadow and unrecorded economy – of which the illicit economy is a subset – is between 10% and 15% of GDP, which means that the under-collected tax is anywhere between R600 billion and R800 billion.

We have been quite conservative to say that if we address the illicit economy, the annual revenue recovery can be between R65 billion and R100 billion.

And that’s been our persistent plea to the minister – to say ‘Look at Sars as an investment centre, not a cost centre’.

I think this year we’ve demonstrated that; with the additional money in terms of the debt-recovery project. Our debt collection this year that we’ve reported was R111 billion.

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And so to your question, where could we have been?

Well, even if we made the overall tax gap as reported by the Davis Tax Commission Committee, our own and other scholarly works say that we have between R350 billion and R600 billion. And that number is already dated. But even conservatively, if we could, say, take R500 billion, and were able to get 20% of that collected, you’re adding another R100 billion into the fiscus.

JIMMY MOYAHA: Commissioner, as we end the conversation and as we come to the realisation that this might be the final conversation that we have with you as the Commissioner of the South African Revenue Service, what is your final message to South Africans, reflecting on a stellar seven years as commissioner and as custodian of one of our proudest institutions?

EDWARD KIESWETTER: First, this has been an inordinate privilege and a humbling opportunity for me to have been given this assignment by the president in 2019, then, throughout this period, the engagement with taxpayers. Many have been tough, but overwhelmingly we have built trust from 48% to 75%, and taxpayer engagement is better than it has ever been.

So my message to taxpayers is to say: ‘Thank you for the trust you’ve placed in us. Thank you for your contribution to the improvement in revenue collection and compliance.’

But most importantly, as I hand over the baton, I urge every South African to be an activist, a democrat, and not to stand by whenever in the future [there might be] a similar attempt to what happened in the mid-2010s for an institution like Sars to be captured and used as their own by a leadership that is corrupt.

South Africans should stand up and say ‘This will never happen again under our watch’.

It is democracy, it is agency by individuals who ultimately make or break our democracy.

JIMMY MOYAHA: That country and that democracy. Thank you, Commissioner Kieswetter, for the service that you have rendered on behalf of all South Africans and on behalf of those that have entrusted you with that role.

That was the Commissioner of the South African Revenue Service, Edward Kieswetter, joining us to reflect on the latest financial year of Sars’s tax collections and indeed on a seven-year tenure as commissioner.

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