South Africa, we made it!
SARS announces the preliminary outcome of revenue collection – ‘outperforming’ the economy
Pretoria, 1 April 2016 – The South African Revenue Services (SARS) has collected R 1.0699 trillion in taxes.
This surpasses the R1.0697 trillion target by R154.07 million set out in this year’s budget speech by Finance Minister, Pravin Gordhan.
SARS has never had to collect more than a trillion rand before. Achieving the target of a trillion rand is indeed momentous and a first for South Africa and SARS.
Key to this accomplishment is the enhancement of our Operating Model which has started transforming SARS into an organisation that is adapting to a changing global environment and refocusing the organisation on the execution of its mandate – that of collecting all revenue that is due to the fiscus.
Significantly, despite South Africa facing declining GDP growth, tax revenue collections have outperformed the economy, representing a growth of 8.5% from the 2014/15 fiscal year, and increasing the estimated tax to GDP ratio from 25.8% in Budget 2015, to 26.3% as projected in Budget 2016. This level of tax extraction moved closer to the levels obtained during the commodity boom cycles in the mid 2000’s.
The primary tax types contributing to this year’s revenue performance were:
- Personal Income Tax (PIT): Total collections were R389.3 billion. This is R35.3 billion (10.0%) higher than the R353.9 billion outcome of the previous financial year.
- Corporate Income Tax (CIT): Total collections were R193.5 billion. This is R6.9 billion (3.7%) higher than the R186.6 billion outcome of the previous financial year.
- Value Added Tax (VAT): Total VAT collections were R280.8 billion. This is R19.5 billion (7.4%) higher than the R261.3 billion outcome of the previous financial year.
- Customs and Excise duties: Total customs and excise duties were R151.8 billion. This is R15.2 billion (11.1%) higher than the R136.7 billion outcome of the previous financial year.
Given the headwinds faced by the global economy and the downward revisions to the South African economic outlook, the challenging revenue target for the financial year 2015/16 forced SARS to ‘think outside the box’ and find innovative and creative ways of collecting the revenue due to South Africa.
This year revenue realisation was made even more difficult given significantly declining consumption constrained further by an interest hike cycle and deteriorating business confidence. The declining currency exchange rate provided real challenges to foreign business exposure.
Economic growth, measured by Gross Domestic product (GDP), is the major determinant of tax revenue. This relationship is captured in a buoyancy factor. In a growing economy tax responds more favourably. When economic prospects dim, tax collection comes disproportionally so under pressure.
South Africa’s post 2008 economic performance has been characterised by flagging domestic demand, weak demand from traditional export partners, labour unrest, inadequate electricity supply and falling output in key sectors. This has increasingly posed challenges to the tax system to generate adequate revenue.
Sector analysis
Overall, the financial sector contributed 49.7 percent of total tax revenue collected and is the highest contributor to all major tax types. This is followed by community, social and personal services at 14.9 percent and the manufacturing sector at 11.2 percent.
The community, social and personal services sector is strong in Pay-As-You-Earn (PAYE), driven by the high government bill. The manufacturing sector falls within the top three sectors in all major tax types.
Taxpayer segment analysis: Small business outperforms large business
The small business sector provides the largest share of revenue, with 68 percent compared to 32 percent from large businesses. The increased focus on enhancing compliance in the SMME sector resulted in a 13.1% year on year growth in revenue, mainly as a result of poor trading environment.
Collections from large businesses contracted year on year by R0.7bn (0.2%). Large business showed signs of distress, due to global economic pressures including supressed demand from trading partners like China and the European Union as well as the volatile exchange rate and a decline in the price of oil and resources.
Tax Types
Pay-As-You-Earn (PAYE) growth against the previous year was R31.7bn (9.2%) slowing significantly in the final quarter of this financial year.
Corporate Income Tax (CIT) provisional tax payments contracted in both the mining and quarrying, and manufacturing sectors by R3.8bn (31.4%) and R2.2bn (5.5%) respectively.
Domestic Value Added Tax (VAT) was negatively affected by poor consumption levels and the contraction of R2.4bn (5.2%) mainly from the manufacturing sector. This is in contrast with a 5-year average growth of 6.4%.
The strategy behind the achievement
The challenges faced by SARS in meeting the target forced the organisation to intensify its revenue collection efforts and develop innovative approaches. Special revenue initiatives included optimal use of resources, increased integration between business units to promote cross-functionality, and reduced duplication. This provided significant efficiencies which in turn realised additional revenue to the fiscus.
The tenets of our plans included:
- Managing at EXCO level the overall performance of the special initiatives program. These programmes were designed to curtail tax leakages, identify opportunities to close tax gaps and to ensure that all revenues were collected in the correct reporting period.
- Deployment of senior executives to champion regional steering committees in order to facilitate cross divisional cooperation and optimise workforce planning.
- A more ‘hands-on’ view regarding revenue collection. The SARS Commissioner and EXCO visited all our SARS regions numerous times since the beginning of the year and countless branches to engage employees and taxpayers, listen to their suggestions and where possible, troubleshoot to ensure that the revenue collection process was seamless.
- Continuous reflection on lessons learned, unblocking of challenges as they arose, sharing of information and embedding new knowledge in the organisation was key to the process.
- The development of extensive business continuity plans and disaster recovery measures.
With this approach, SARS has achieved increased efficiency in maintaining the tax base, closing tax gaps and securing revenue that was due to the fiscus in the correct reporting year.
SARS would like to acknowledge and thank the citizens of South Africa and the 14 500 men and women who work at SARS for achieving the revenue target.
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