Customs

On 30 October 2024, the South African Revenue Service (SARS) welcomed the Medium-Term Budget Policy Statement (MTBPS) tabled by the Minister of Finance in Parliament. The minister revised the 2024 February Budget net tax revenue estimate from R1,863.0 billion to R1,840.8 billion.

As of 30 September 2024, SARS collected a gross revenue of R1,070.4 billion, yielding a net revenue of R846.2 billion and R224.3 billion in refund payments. The revenue performance was bolstered by more robust collections from CIT Provisional tax and lower-than-expected Value-Added Tax (VAT) and Personal Income Tax (PIT) refund payments. Lower-than-expected collections from Customs Taxes, Pay as You Earn (PAYE), and the General Fuel Levy offset this. The areas that were adjusted downward are:

• Lower-than-expected previous-year salary adjustments reduced the nominal wage bill estimate from Budget 2024 of 8.4% to MTBPS 2024 of 5.5%.
• Slower growth in capital projects across general government, public corporations and the private sector, with Gross capital formation anticipated to decline from Budget 2024 of 9.5% to 5.2%.
• The downward revision in the outlook of nominal exports from 5.2% to MTBPS 2024 of 3.5% and nominal Imports from 6.0% to 3.8%.
• At Budget 2024, we assumed a 13.8% growth in PAYE based on an 8.4% growth in wage bills. PAYE collections for year-to-date September 2024/25 amount to R340.0bn, lower than the PE by R12.0bn (3.4%) and higher than the previous year by R30.8bn (10.0%).
• The deficit in revenue collections was partially offset by solid collections in CIT provisional tax collections, which collected R150.2 billion against an expectation of R141.4 billion, yielding a surplus of R8.8 billion, up by 2.7% or R3.9 billion from the previous year.
• Fuel levy: A year-on-year contraction in fuel consumption has been a significant issue for this financial year. A substantial amount of 1 333 million litres less fuel was used, which can be attributed to various factors such as the lower load-shedding levels and a shift towards alternative energy sources. The reduction in fuel consumption directly impacted the Net Fuel Levy. This has seen a year-on-year contraction of 3.9%, resulting in a shortfall of R7.2bn.
• Trade taxes: Imports were expected to grow by 1.9%. However, year-to-date imports have declined by 5.1%. The total trade flows have also declined by R39.2bn (-2.0%) compared to the corresponding period last year. The overall decline in imports is due to low import flows of electrical machinery and vehicles.

Provisional CIT collections of R150.2bn recorded a surplus of R8.8 billion (6.2%) and year-on-year growth of R3.9 billion (2.7%), mainly due to the finance, electricity and manufacturing sectors. Collections grew above the required Budget 2024 rate of -3.3%. However, the mining sector continues to encounter significant challenges, primarily due to volatile commodity prices affecting platinum group metals, coal, and iron ore. The price fluctuations affect companies' profitability, resulting in downward pressure on CIT provisional payments. The sector has also been facing ongoing issues with transport, logistics, and border crossings, causing delays and increased export costs.

Despite finalising ± 1.3 million more debt cases, which is almost 290% more than the previous year, our debt compliance efforts have yielded lower returns year-on-year by R9.3 billion, which equals a 23.6% year-on-year contraction. SARS recorded significant increases yearly in deferred payment arrangements for debt, requests for suspension of payments and issuing final demands. This evidences the degree of hardship taxpayers feel, which negatively affects their ability to honour their tax obligations.

The SARS Strategic Intent will continue to focus on Voluntary Compliance, ensuring taxpayers and traders have clarity and certainty regarding their obligations and the necessary tools to facilitate easy and straightforward compliance. Conversely, SARS will impose significant legal and administrative costs on taxpayers and traders who deliberately fail to meet their obligations.

Compliance efforts continue to yield success in dealing with non-compliance in particular segments and tax products. To date, compliance revenue secured R110.1 billion, reflecting a growth of R8.1 billion (8.0%). SARS will continue to intensify its efforts to maintain visibility and reinforce compliance. It plans to invest further in compliance initiatives to close the tax gap by targeting various taxpayer segments.

The SARS Commissioner said, "In pursuing the attainment of the 2024/25 tax revenue estimate of R1 840.8 billion, SARS will be unrelenting in its drive to engender voluntary compliance. Critically, this pursuit ensures that intermediaries charged by law to collect taxes on behalf of SARS pay it over. Importantly, SARS is ready to act against those who wilfully and defiantly ignore their legal obligations by misrepresenting their true economic status. Those who enable this conduct are equally culpable. Taxpayers who abdicate their legal obligations place a disproportionate burden on honest taxpayers. Taxes are critical in cushioning the most vulnerable and destitute in our society. In this respect, voluntary compliance is sacrosanct.”

The Commissioner added: “SARS will continue to intensify and deepen its existing administrative efforts. We will continue to use sophisticated data science and artificial intelligence to maintain the balance between service to taxpayers/traders whilst managing risks to the fiscus by detecting dishonest taxpayers.

“SARS will deploy more data science and artificial intelligence (AI) to step up its focus on the following areas of compliance risk:

• Broadening the tax base via third-party data sources: Leveraging data from both formal and informal sectors to widen the tax base.
• Work to register all taxpayers and traders who ought to be on the register, through predictive modelling, and ensure that they honestly file their declarations and pay their dues where necessary.
• Build its detection capability using machine learning models and Artificial Intelligence (AI) to significantly improve service and offer a seamless service to honest taxpayers. This will also be used to detect dishonest taxpayers, improve debt collection while expanding the tax base and deal with tax avoidance.
• Enforcing trade laws against the illicit economy (Customs and Excise): Strengthening tools to detect and prevent illicit activities, including tobacco, fuel, and illicit financial flows.
• It focuses on dispute prevention and resolution: Prioritising products and strategies that prevent disputes that can be resolved.

SARS is the nation’s treasure; a well-functioning tax and customs administration is a cornerstone of our vibrant democracy and should never be taken for granted. SARS seeks to ensure revenue sustainability by securing appropriate investment in SARS and funding certainty. From a human capital perspective, SARS will continue to attract, develop, and sustain a workforce ready for the future. We will be building the leadership bench strength of SARS and protecting the institution's autonomy.”

Despite the challenging operating environment, SARS expects that the start of a cycle of interest rate cuts will spur consumption expenditure. This expansion is expected to drive economic growth and widen the tax base, resulting in buoyant corporate tax and VAT revenues. Additionally, introducing the “Two-Pot” system is expected to increase the tax base in the short to medium term. The 12,821 SARS staff, to whom we express sincere appreciation, will continue to work diligently to achieve the revised revenue estimate presented by the finance minister.