PwC South Africa has launched its seventh annual Taxing Times Survey – open to all corporate taxpayers and which aims to assess their interactions with the South African Revenue Service (SARS), identify the organisation’s strengths, and highlight areas or processes within SARS that require improvement.

In February, SARS announced that it had collected R1,74-trillion in net revenue as at the end of March 2024 – exceeding its provisional revenue target for the 2023/24 financial year by almost R10-billion. Refund payments amounted to almost R414-billion – the highest in the organisation’s history.

“In February 2024, around the time that South Africa’s national budget was to be delivered, PwC’s forecasts were in line with those of National Treasury,” says Kyle Mandy, PwC South Africa Tax Policy leader. “The months following the national budget speech have proven to be relatively strong months across the three main types of tax: corporate income tax (CIT); personal income tax (PIT); and value-added tax (VAT) which has contributed to these forecasts being exceeded.”

He adds that it is particularly encouraging that CIT held up very well in February and March (CIT collections were R12-billion higher than the February estimate). “This is also positive for the outlook for the year ahead,” he says.

“Not only is the base of which 2024/25 revenues will have to grow R9,5-billion higher, but it also suggests that the forecast 2024/25 CIT revenues may be underestimated – de-risking the revenue forecast for 2024/25 to some extent. All of this suggests that the budgeted deficit for 2024/25 may come in a little lower than was estimated all things being equal.”

Elle-Sarah Rossato, PwC SA Tax Controversy and Dispute Resolution partner, says: “A prominent factor enabling SARS to boost its revenue collection has been its drive to improve compliance with a greater focus on the deployment of new technologies. To turn SARS into a modern and technology-driven tax authority, greater emphasis needs to be placed on its tech and artificial intelligence (AI) capabilities. This is something which the revenue authority is proving to take seriously considering the implementation of its Compliance Programme and Tax Administration 3.0.”

She says fraud and the illicit economy also remains a key concern for SARS, and that greater tech adoption and an increase in its skilled workforce will aid SARS to be better equipped to combat non-compliant taxpayers and the illicit flows of billions of rand every year – thereby focusing on closing the tax gap.

Her sentiments are echoed by Jadyne Devnarain, PwC SA Tax Controversy and Dispute Resolution associate director: “SARS’ Compliance Programme uses data, AI and machine learning algorithms to successfully counter non-compliance. For SARS, a key focus is curbing illegitimate refunds. These systems aim to prevent refunds claimed fraudulently. SARS has recently reported that the use of these systems contributed to it preventing the outflow of R101-billion of impermissible refunds in the last financial year.”

Mandy says that the overall performance of SARS has improved considerably in the last five years following governance and tax administration issues – and that commissioner Edward Kieswetter must be credited for what he and his team have achieved in this regard.

“That said, there is still much work to be done for SARS to fulfil the ambition of becoming a modern and technology-driven tax authority following the loss of skilled talent and under-investment in technology during the last decade,” he says.

On SARS’s Compliance Programme, Rossato says it must be remembered that despite the commendable efforts by the revenue service in recent years, the net tax gap (the difference between taxes that should theoretically be collected in terms of the law and taxes that are actually collected) is estimated to be in excess of R300-billion.

“While there will always be a tax gap in any country, that level of tax gap (15%+) is considered large,” she says. “To put it into perspective, the estimated tax gap in the UK is under 5% and in Australia 7%.

“Halving the tax gap in South Africa would have a positive impact on the country’s fiscal metrics (the estimated tax gap is similar in size to the main budget deficit), potentially freeing up space for tax cuts, increased social and infrastructure spending, and dramatically altering the debt trajectory all at the same time.

“Closing the tax gap is a core responsibility of SARS and it is imperative that they be given the resources to invest in people and technology that would help them to do so.”

You can have your say in the latest survey here: Taxing Times Survey