(Bloomberg) -- South Africa will struggle to meet revenue estimates this year, even as the new head of the tax agency sets about repairing the “deep damage” that took place under his predecessor’s watch.
“It’s going to be hard” to reach the estimated 1.58 trillion rand ($105 billion) of revenue the National Treasury forecast for the year that ends in February, South African Revenue Service Commissioner Edward Kieswetter said in an interview at Bloomberg’s Johannesburg office Thursday. “The revenue-recovery program depends on whether I get more resources. I’ll certainly keep trying.”
The government has cut the tax agency’s budget amid a fight for resources, hindering the organization’s ability to do its work effectively. SARS’s 9.45 billion-rand allocation for this fiscal year is smaller than its total spending in the 2014 financial year. Kieswetter, who took over as head on May 1, inherited an institution that suffered “massive failure of governance and integrity” after the appointment of former head Tom Moyane in 2014, a commission that probed problems at the body found.
“The resources that have been allocated to SARS have been significantly constrained, for no other reason that there just is no money,” he said. “Unless we have the resources to rebuild the capability, the project of restoring SARS is at risk.”
Weak economic growth has translated into lower-than-expected tax revenue from both citizens and companies, with a total collection shortfall of 57.4 billion rand in the year that ended March 31, the agency said in April.
SARS, which employs about 12,500 people, has around 1,000 vacancies, 600 of which are critical, Kieswetter said. Many skilled professionals left the organization under the previous administration, and the new commissioner wants to lure some of them back to boost the agency’s capabilities.
“There isn’t a single silver bullet to fixing SARS,” he said. “I cannot even tell you the full extent of what it means to fix SARS. The tragedy of SARS is microcosmic of the tragedy of South Africa.”
Finance Minister Tito Mboweni will present the mid-term budget on Oct. 30. Additional support of 59 billion rand for the cash-strapped power utility, Eskom Holdings SOC Ltd., will probably push the fiscal deficit for this year much wider than the 4.5% of domestic product that was projected in February. Mboweni reiterated that the aid, combined with lower expected tax revenue, will come at a significant cost to taxpayers.
Mboweni “understands there are two sides to the coin of how much money you extract from the economy via taxes,” and is “very mindful” of the implications, Kieswetter said. To raise revenue, the minister will first make sure the agency functions effectively and see that cabinet colleagues “rein in their expenditure” before raising taxes, he said.
The Treasury in August said it has asked departments to prepare proposals on how to reduce expenditure in a way that has the least impact on service delivery.
“Before you look at just adjusting policy, you first have to make sure that the money that’s due to you, you can collect,” Kieswetter said.
(Adds Treasury’s request for spending-cut proposals in penultimate paragraph)
--With assistance from Gordon Bell, Amogelang Mbatha and John McCorry.
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