Collection of R50bn more than was expected: that's the remarkable achievement over two years by the SA Revenue Service (Sars) under commissioner Pravin Gordhan.
Earlier this year, thanks largely to an expected R30bn tax revenue overrun, the national treasury was able to deliver a feel-good expansionary mini-budget. Finance minister Trevor Manuel talked of "hitting the sweet spot". He allocated a further R78bn to accelerate public expenditure and eased some foreign exchange controls. There was also space to hold out the promise of more personal income tax cuts in 2006.
The fiscal deficit was projected to fall from a budgeted 3,1% of GDP to a mere 1% in 2005/2006, the lowest deficit in a decade of ANC government.
The previous year there had been a R21bn revenue overrun, so the efficiency of Gordhan's operation came as no surprise. It was also the fruit of strategic planning that began not long after Gordhan took over Sars in 1999.
In May 2003, for instance, Gordhan told the FM that Sars regarded "big investments in new IT systems as crucial if it's to meet its aggressive tax collection targets and improve service levels to taxpayers . . . We want to give our enforcement arm the kind of data to help them track criminal activity."
At the time Gordhan estimated that R30bn in potential revenue was slipping through the taxman's net. "We are taking small bites into that," he said, "but those bites are not big enough. Hiding income is a habit people have got into and it's something we need to crack."
It was in 2005 that the corporate world finally realised that not only does Gordhan mean business in the sense of increased efficiency (which people may resent but cannot really quibble with), but he insists that we change the way we think about tax.
In a discussion paper on tax avoidance issued in November, for instance, Sars raised the distinction between "tax evasion, impermissible tax avoidance and tax planning".
That second category was new to many executives charged with ordering a company's tax affairs, and they did not like what they saw. "Impermissible" tax avoidance, according to Sars, "involves contrived arrangements that are designed to exploit perceived loopholes in the tax laws". In the past, such arrangements would have been regarded as a legitimate part of tax planning. But if Sars has its way (and it usually does), that will no longer be the case.
Such determination is understandable in the context of Gordhan's background. He is not a career civil servant (before going to Sars he was an ANC MP) and under him Sars does not see itself merely as a division of the civil service. He has a postgraduate diploma in economics from the London School of Economics, but his degree was in pharmacy, and he was involved through student and community structures in the struggle against apartheid.
Gordhan's Sars is filled with talented people who are (or will be) much in demand in the private sector. Their technical aptitude seems matched by a conviction that impermissible tax avoidance can, in the words of the discussion paper, "precipitate severe revenue losses that limit government's ability to pursue its economic and social agenda". In other words, they are on a mission.
Such zeal may be distasteful to a business culture more accustomed to cutting corners and doing deals in tax matters, but it is here to stay. Nor does it rest on vague socialist dogma. The discussion paper on avoidance, for instance, is a rigorous document, drawing not only on SA's experience but on international best tax practice. Corporate tax planners will have to be at their best to influence future regulations. This was the year Gordhan put them on notice.
