‘Easy’ fix for VAT increase on the cards

The National Treasury and the South African Revenue Service (SARS) are reportedly close to a solution for the widely rejected VAT hike coming into effect from 1 May, although it won’t come in time to stop it outright.

The Sunday Times reports that Treasury and SARS have resolved to change the latter’s revenue collection estimate in the budget by between R20 billion and R60 billion.

This would be enough to account for removing the VAT hike and more.

Unfortunately, government processes are slow, and the changes are unlikely to be finalised before the 1 May implementation date.

However, the paper said the plan is to get it done two months into the new cycle, with rebates for businesses and consumers charged the higher VAT rate.

It appears that the bottom line remains that the VAT hike will proceed on 1 May as planned.

This was given credence this week after Finance Minister Enoch Godongwana’s response papers to the DA’s court case indicated as much.

The minister was responding to the court case brought by the Democratic Alliance (DA), which is trying to stop the VAT hike through legal action.

The party rejected Godongwana’s budget and voted against it in Parliament. It also seeks to curtail the Finance Minister’s unilateral powers to change VAT by simply announcing it in the budget.

In his response to the case, the minister said that only an Act of parliament could reverse the VAT hike, insisting that his framework was sound and could not be altered.

He also insisted that there was no alternative to the VAT hike. If there had been, it would have been considered and implemented in the budget.

Putting all the pressure on SARS

However, the revised March budget gave SARS billions more to aid its revenue collection, so this should boost the numbers.

Furthermore, SARS Commissioner Edward Kieswetter had made headlines before and after the budget speech about a ‘theoretical’ R800 billion in uncollected taxes owed to the taxman.

Not all of this is directly taxable, with various amounts tied to disputed and undisputed outstanding debts, litigation and settlements.

However,a ‘tax gap’ assessment conducted on 2022 data showed that between R320 billion and R500 billion is theoretically taxable and collectable.

Breaking it down even further, the assessment showed that approximately R78.5 billion remained uncollected from corporates (CIT), R200 billion from income taxpayers (PIT) and R200 billion from VAT.

SARS noted that as much as R18 billion is owed in excise on tobacco. This puts the total potential tax collection at R500 billion.

Crucially, the revenue collection figures in the budget are estimates, so these could be simply changed to account for the shortfall – but the pressure would then be on SARS to make good on the targets.

According to the Sunday Times, SARS is already primed to do so, with Kieswetter having a list of big businesses to go after should the plan be approved.

The taxman has also talked up other collection targets, including thousands of millionaires in the country who are not paying their dues.

Kieswetter said in March that there are approximately 100,000 people earning over R1 million who are also not currently paying any income tax.

SARS is also tapping into individuals whose economic activities do not match their income tax data.

Kieswetter flagged around 156,000 individuals that have been identified in the system that should be filing tax returns.