Home South African Sars feels the burn of lost taxes on booze, smokes

Sars feels the burn of lost taxes on booze, smokes

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The banning of the sale of alcohol and tobacco products during the first three levels of the Covid-19 lockdown has cost the government at least R12 billion in lost revenue.

File image. Picture: Supplied

Durban – The banning of the sale of alcohol and tobacco products during the first three levels of the Covid-19 lockdown has cost the government at least R12 billion in lost revenue.

Addressing the South African National Editors’ Forum yesterday, SA Revenue Service (Sars) commissioner Edward Kieswetter said that while he was not prepared to pass judgement on the government’s decision to prohibit the sale of these goods, the consequence had been “a devastating loss of revenue”.

Although estimates of at least R10bn in lost taxes over the past four months had been reported so far, this figure did not include downstream taxes. Many were still to file their corporate tax returns and Kieswetter expected the overall effect to add another R2bn to the current estimate, bringing the total in lost revenue to at least R12bn.

“But the real tragedy is that people did not go without. They simply went to the illicit economy to obtain what they needed. The (problem) it presents for us is that those illegal operators have now embedded themselves in the system.

“They used this opportunity to market themselves, to expand their customer bases. Honest people who would otherwise buy legally were forced to buy illegally. It will take us years to reverse the unintended consequences of the alcohol and cigarette ban,” he said.

Kieswetter said that during lockdown, there had been a proliferation of illegal activities that affected revenue collection. Even without the current pandemic, he said that illegal activities were estimated to result in a tax compromise of more than R100bn. This would increase significantly if deliberate tax evasion was included.

Unfortunately, according to Kies­wetter, initiatives to stem this criminal activity, which included the imposition of a track-and-trace system to identify illicit goods, had had to be put on hold during the lockdown period.

Kieswetter nevertheless promised that dishonest tax payers would not get away with it.

Although Sars was aware that not all taxpayers were equal in their “complications and peculiarities”, he said that all taxpayers would be treated the same.

He added that while they were prepared to help those who were “willing but not able” to comply, those who criminally and aggressively refused to comply would feel the full extent of the law.

He also noted that it would take years to rebuild public confidence and trust in Sars, and that compliance levels were at a low of 65.1%,

“Of course, when you see corruption, and more recently, Covid-19-related corruption, where there are numbers of politically exposed persons and businesses caught in this way, it does not do well for public confidence and has a negative impact on tax morality and a downward effect on taxpayer compliance.”

He noted that massive damage had been done by state capture, which he said was a deliberate and intentional attempt to weaken the institutional integrity of Sars as well as to undermine its capability to administer its core mandate.

Units had been closed and allegations of rogue activities had yet to be proven. Added to this was a total breakdown of trust between Sars leaders and employees, who had become marginalised and demotivated.

The end result was that Sars found itself in a downward cycle of compliance and revenue decline. Against this background, Kieswetter said that Sars had begun to rebuild its energy, and re-configure its strategic intent and future vision towards the end of last year.

This factored in the already evident economic woes of the country and enabled the revenue service to react with urgency to the unexpected Covid-19 pandemic.

He said he had predicted that the country’s economic woes would continue even before Covid-19.

He said that in February, prior to the arrival of Covid-19 on South African shores, Sars had expected to collect R1.4trillion. This had now been revised downwards to R1.12trillion, based on the contraction of the economy.

To date, this year, R356bn had been collected, as opposed to R358bn this time last year.

Collections had contracted by around R95m, which was the real measure of the impact that Covid-19 had had on revenue collection to date.

The Mercury