This article was first published by BizNews on 8 November 2024
Author: Nicholas Woode-Smith
21 November 2024
If the South African Revenue Service (SARS) and the South African government want to improve tax revenue collection, they need to implement policies that enable economic growth and wealth creation. Unfortunately, SARS is more intent on blaming the private adoption of rooftop solar panels than the government’s terrible, economy depressing policies.
The tax collected for the 2024/2025 financial year is expected to be R22.3 billion lower than estimated in the February 2024 main Budget. Tax income is expected to shrink year-on-on-year as the economy continues not to grow sufficiently.
SARS Commissioner Edward Kieswetter has blamed a decline in fuel levy revenue for the shortfall. This is due to Eskom managing to overcome a lot of its political baggage and change its procurement policy to enable the maintenance of power plants.
This went on to cause Eskom to not need to burn as much diesel as predicted. Couple this with many South African households embracing rooftop solar panels, and demand on the grid and demand for fuel for generators was reduced further.
Kieswetter rightly admits that our electricity crisis coming to an end, at least for now, is good for the economy. But his complaints about the R8.4 billion reduction in revenue due to the lowered consumption of fuel shouldn’t even be relevant. He further complains that customs duties and import VAT was lost due to the lowered demand.
The purpose of tax is for it to be spent to enable the protection and flourishing of the citizens of a country. If citizens are prospering at the expense of tax income, then that tax income is not needed. For example, if an entire country can afford quality, private healthcare that they pay out of pocket, then that same population shouldn’t be taxed to fund an unused public healthcare system.
In this way, SARS has no right to complain that South Africans are not using an overtaxed resource because they have found better alternatives.
Rather, SARS and the government should be looking for more practical methods to raise tax revenue, balance the budget, and ensure the prosperity of all South Africans.
First, South Africa has a bloated government, with a budget that enables mass looting and corruption, as well as countless Rands wasted due to incompetence and ill-thought-out spending. The most recent budget has made moves to cut the budget, but more must be done.
If taxpayers can’t afford a bloated government, then the government needs to be cut down to size. Redundant and unnecessary ministries need to be dissolved. Parastatals need to be privatised, and their fiscal responsibility pushed to the private sector – where they can then become taxpayers, rather than tax drainers.
Functions that can be performed by the private sector, such as education and healthcare, must be privatised as much as possible – with public spending on those sectors shifting from funding an incompetent and wasteful public infrastructure, with directly helping citizens access high quality private sector establishments through vouchers.
To increase tax revenue, the government needs to enable economic growth so wealth, businesses and jobs can be created. The more wealth, the more tax revenue. Rather than searching for more blood to squeeze from a stone, SARS should be working with policymakers on how to enrich South Africans so that they can pay more tax. With over a third of South Africans unemployed, of course we are struggling to raise tax revenue. Create jobs, and tax will follow.
Economic growth can be achieved by deregulating and liberalising the economy. This means removing political interference as much as possible. It should be possible to register and start a business in a few days. If not shorter. And bureaucratic processes like UIF, VAT registration, and a host of other taxes and paperwork hurdles need to be streamlined or abandoned.
On top of that, and most importantly, BEE must be abolished. BEE disincentivises businesses from wanting to enter the economy, as the host of ludicrous, frankly racist regulations make operating the business costly and borderline impossible. Racial quotas cannot be achieved in many areas, with some ludicrous regulations preventing local racial majorities from being employed in BEE compliant companies. Not to mention that race should not factor into employment.
The sin of Apartheid was discrimination based on race. BEE fundamentally discriminates based on race. It demands that people are given positions in executive roles due to their race and enables corruption through costly procurement and tender processes. An entire illicit industry has formed to enable corruption surrounding BEE and its related race-based laws.
Abolish BEE and all racial legislation in South Africa, as we should have in the 1990s, and the economy will boom. Businesses will deem it safe to start and grow. Jobs will be created on mass, as people will know they can employ whoever is right for the job, without political interference. And the economy will grow, leading to the growth of tax revenue. It’s that simple.
The Author
Nicholas Woode-Smith is a political analyst, economic historian and author. He is a Senior Associate of the Free Market Foundation and writes in his personal capacity.
