Despite tax revenue growth, refunds undermine SARS collections

SARS offices
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The South African Revenue Service (SARS) revealed that while tax revenue collections have grown, this gain has been offset by an increase in refunds paid out to taxpayers.

This situation has contributed to a projected R56 billion tax revenue shortfall in the current financial year, as indicated in the recent midterm budget policy statement.

SARS attributed the growth in refunds to a combination of factors, including improved tax compliance and the proliferation of digital technology in tax administration. The organization confirmed that it successfully processed 27 million tax returns using machine learning algorithms, which has streamlined the refund process.

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Despite the efficiency gains, the overall revenue collection has been impacted by load shedding and the logistics challenges faced by Transnet. These disruptions have had a negative impact on businesses, leading to increased claims for input tax credits, which has further contributed to the growth in refunds.

SARS Commissioner Edward Kieswetter highlighted the impact of load shedding on tax collections, stating that companies generating their own electricity due to power outages have been eligible for larger input tax credits. He estimated that the combined revenue losses from Eskom and Transnet exceed R200 billion.

Kieswetter emphasized the need for urgent action to address the challenges posed by Eskom and Transnet, emphasizing the significant economic impact of these disruptions. He called for a focussed effort to “re-conceptualise and fix” the underlying issues.

While SARS has made progress in improving tax compliance and utilizing technology to streamline processes, the growth in refunds and the impact of load shedding and Transnet disruptions have undermined tax revenue collections.

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