South Africa’s tax system has been hit hard by years of corruption and serious governance issues, leading to a deterioration in tax morale and trust in government.

Facing these issues, South African taxpayers may start withholding their tax payments due to years of corruption, says new SARS commissioner Edward Kieswetter, who said that this withholding of funds may ultimately lead to an international bailout from an organisation like the IMF.

Concerns around the country’s deteriorating tax system were also raised by the deputy minister of finance, Dr David Masondo, who was speaking at the 2019 Tax Indaba on Monday (26 August).

Masondo said that this period of instability has coincided with increasingly large tax revenue shortfalls.

“From a shortfall of R7 billion in the tax year that ended in 2015, the under-collections have consistently increased to the latest shortfall of R57 billion.

“And this has happened over a period where tax rates have been increasing, with a higher personal income tax rates across the income distribution, a new top rate of 45% on incomes over R1.5 million, higher capital gains tax and dividends tax rates, increases in fuel levies and even an increase in the rate of value-added tax.”

Despite all these measures, weak economic growth and lower-than-anticipated revenue have led to persistent budget deficits, which are also increasing, Masondo said.

“The budget deficit was 3.6% in 2015, yet our latest published projections from February anticipated an increase to 4.5% this year, and that is before the impact of transfers to Eskom.

“Given the deteriorating budget balance, debt-to-GDP has been tracking upwards, although at the time of the Budget it was expected to stabilise at 60.2% in 2024.”

Masondo added that an ever-increasing reliance on debt leads to debt-service costs that start to crowd out social expenditure.

“We need to ensure that our fiscal position is sustainable so that we can serve our citizens and enable them to enjoy the rights promised to them under the Constitution.

“Significant tax policy adjustments have been made in recent years to get the country back on a sustainable path, and this should be our collective responsibility.”

Masondo said that the following steps could be followed to get the country’s tax system back on a sustainable path:

Firstly, we need to determine whether our tax policy design is suitable for the future, based on the key principles of good tax policy design;

Secondly, by ensuring that we have a strong, capable and technologically proficient revenue authority. SARS has suffered immensely from governance failures in recent years – to the detriment of staff morale, taxpayer morale and tax revenue collections;

Thirdly, by spending more effectively and deriving visible value for the revenue that we raise. The developmental impact of our spending legitimises our taxes.

“With improvements in these core functions, taxpayer morale will improve naturally,” Masondo said.

Read: South Africa may be on the verge of a tax revolt: SARS chief