File image: IOL
File image: IOL
President Cyril Ramaphosa wants Sars to be sorted out.
Photo: EPA-EFE
President Cyril Ramaphosa wants Sars to be sorted out.
Photo: EPA-EFE
JOHANNESBURG - Cyril Ramaphosa’s tough stance on governance issues at the SA Revenue Service (Sars) received the full backing of South African banks and the business community.

Ramaphosa, in his State of the Nation Address (Sona) on Friday, said tax morality was dependent on an implicit contract between taxpayers and the government and must be free from corruption.

“At the request of the Minister of Finance I will shortly appoint a Commission of Inquiry into Tax Administration and Governance of Sars, to ensure that we restore the credibility of the service and strengthen its capacity to meet its revenue targets,” Ramaphosa said.

The revenue service is staring at an R50.8 billion revenue shortfall - the highest since the 2009 recession.

President Cyril Ramaphosa wants Sars to be sorted out.
Photo: EPA-EFE

Massive shortfalls

Finance Minister Malusi Gigaba said in his Medium-Term Budget Policy Statement (MTBPS) that the revenue deficit would be R50.8bn in 2017/18, increasing to R69.3bn in 2018/19 and R89.4bn in 2019/20.

Gigaba said these shortfalls required an inquiry into tax administration.

He had said at the time: “It is critical for government to determine the cause of the tax revenue under-collection in order to enable government to take urgent remedial steps to ensure that Sars is able to meet its revenue targets as set out in the Budget.”

The revenue service has also been accused of poor governance.

Sars commissioner Tom Moyane’s second in command, Jonas Makwakwa, has been accused of money laundering, and Moyane has been accused of shielding him.

The alleged disharmony at Sars has resulted in more than 500 employees leaving last year alone.

Cas Coovadia, the managing director of the Banking Association of South Africa (Basa), said the Sona speech contributed to policy certainty and encouraged domestic and foreign investment.

“Of particular importance is the announcement of a commission of inquiry into Sars and support for small businesses.”

“South African banks are ready to respond to the call for business to work with other stakeholders towards the recovery of the economy and country,” Coovadia said.

Jabu Mabuza, the convener of the CEO Initiative, said it was good that Ramaphosa was determined to deal with challenges at Sars.

“The commitment to establish a commission of inquiry into tax administration and governance at Sars is welcomed - addressing the credibility of the revenue-collection capacity can produce much-needed resources to enhance growth,” Mabuza said.

Ramaphosa also announced a range of initiatives to boost the ailing economy.

The president said he would convene a jobs summit in the next few months, while an investment conference was expected before June.

Ramaphosa said the government would also act decisively in fixing battered state-owned enterprises and the impasse over the Mining Charter.

Promising a “New Deal for South Africa,” Ramaphosa said he was aiming for economic growth to rise to 5 percent by 2023.

The market focus now has shifted to Wednesday's watershed Budget speech, with rating agencies particularly keen to see how the finance minister will plug the shortfall and stabilise government debt.

Annabel Bishop, the chief economist at Investec, said it was the 2018/19 deficit and borrowings projections that would in particular be the focus for the markets and the credit-rating agencies.


"But just as much as the rating agencies are watching for fiscal consolidation, so they are watching for the avoidance of excessive indirect and direct tax hikes that would strangle economic growth," Bishop said.

Rating agency Moody’s Investors Service last year put South Africa on a credit downgrade review, saying it would wait for the Budget speech before it made its decision. A downgrade from Moody’s would see the country excluded from the Citi World Global Aggregate Bond Index. This could result in more than R100 billion in outflows.

Lullu Krugel, the chief economist at PwC Africa, said bond traders had since the MTBPS been pricing in further downgrades in South Africa's local bond ratings.

“However, the decline in bond yields since President's Ramaphosa’s election as ANC leader indicated that investors were expecting him to at least stem the downward trajectory in sovereign ratings,” Krugel said.