A marked slowdown in the rate of revenue collection in recent years has underscored the effect poor economic growth and governance problems at Sars have had on state coffers.

According to the 2019 tax statistics, released by Sars on Monday, the compound annual growth rate in revenue collections was 6.9% during the five years between 2014/2015 and 2018/2019, down from the 10.5% growth rate over the preceding five years.

The 2019 edition of the statistics provides an overview of tax revenue collections and tax return information for the 2015 to 2018 tax years, as well as the 2014/2015 to 2018/2019 fiscal years.

In the recent medium-term budget policy statement, finance minister Tito Mboweni said growth in gross tax collections needed to reach 10.4% in 2018/2019 to meet tax revenue estimates. Instead, the revenue target for the 2018/2019 year was missed by R57.3bn, the largest under-collection since the global financial crisis.

The bulk of the shortfall was due to the poor economic climate, which hurt individuals’ income as well as company profits. The Treasury also noted, however, the work done by the Nugent commission of inquiry into Sars, which highlighted “significant governance failures, the dismantling of critical organisational arrangements, and the loss of experienced staff, which contributed to poor revenue collection in recent years”.

The Treasury said revenue shortfalls are expected to total R251bn in the coming three years.

The Nugent commission, headed by retired judge Robert Nugent, investigated the erosion in tax governance and administration at Sars, much of which he found happened under the leadership of former commissioner Tom Moyane.

The tax statistics also outlined some of the changes in the tax buoyancy ratio in recent years. The ratio is an important indicator of tax revenue performance, and a measure of the sensitivity of tax revenues to changes in economic growth. A value above one means that revenues are growing faster than the economy, while below one means they are growing below the rate of GDP growth.

“SA tax revenue collections have remained buoyant after the 2008/2009 financial crisis despite tough economic conditions,” Sars said in the document. However, in recent years the tax buoyancy ratio has dropped below the long-term average of 1.08 — falling to 0.97 in 2016/2017 and 1.00 in 2017/2018. This was due to lower-than-expected collections in taxes on individuals’ income and company profits, Sars said.

Companies taxable income woes

Poor economic growth in recent years has also seen a declining contribution from company income tax (CIT) to overall tax revenues. In 2018/2019 the relative share of CIT to overall tax revenues fell to 16.1% from 18.1% in the preceding three fiscal years (2015/2016-2017/2018).

According to Sars, of the companies assessed for the 2017 tax year, only 24.3% had positive taxable income, while 48.3% had taxable income equal to zero. The remaining 27.4% reported an assessed loss.

Though poor economic growth, in the face of the tax agency’s governance problems, has taken its toll on revenue collection, commissioner Edward Kieswetter, who began his term in May, has committed to returning Sars to a sounder footing.

In October, Sars officially relaunched its large business centre, which was dismantled during the Moyane years. Kieswetter said at the time that Sars was targeting VAT fraud as well as investigating 30 high-profile cases stemming from both the Zondo commission into state capture as well as the inquiry by retired judge Lex Mpati into allegations of impropriety at the Public Investment Corporation (PIC).

Sars said on Monday that it would provide an update on internal changes and outline new plans in the new year.

donnellyl@businesslive.co.za