Possible divergence in policy approaches to dealing with the spiralling R800 billion a year uncollected taxes - which have resulted in a public gaffe involving Finance Minister Enoch Godongwana's comments on the SARS Commissioner, Edward Kieswetter - needed deeper administrative and legislative overhauls to stopper the gap, analysts said on Thursday.

In the lead up to the tabling of the 2025 Budget Review, which was postponed at the eleventh hour on Wednesday, Kieswetter had been on record expressing concerns about hiking taxes, and instead suggesting that investing in tax agency would help collect the estimated R700bn to R800bn in uncollected taxes.

Kieswetter suggested that modernizing the SARS would improve tax collection, broaden the tax base and enhance compliance, noting that the last VAT increase in 2018 did not significantly boost revenue.

The estimated R700bn to R800bn in uncollected taxes includes R450bn to R460bn from theoretical modelling and more than R300bn from outstanding tax returns.

Kieswetter emphasised the need to address South Africa’s unsustainable fiscal debt burden, which may rise nearly 80% of GDP in the next three years.

The National Treasury initially expected R1.86 trillion in tax revenues for 2024/25 but revised this figure downward to R1.84trln due to decreased personal income tax, VAT, and fuel levies.

Kelly Wright, a partner at Pan-African advisory firm Bowmans, said there was an issue with the legislation and the administrative process involved.

Wright unpacked the challenge of uncollected tax, saying SARS was obliged to follow strict processes to complete an investigation or audit and issue an assessment, which generally include significant understatement penalties and interest.

She said that by the time this process was complete, often the offending taxpayer has disappeared and any funds have been spent or left the country and were no longer collectable.

“So, the debt balance sits there and continues to grow. Our understanding is that this amount is grossly overstated because most of this debt is very old and inherently “bad” or “irrecoverable”. The problem is that, unlike an ordinary taxpayer, SARS cannot simply “write off” a debt that it is unable to collect,” Wright said.

Anchor Capital economist, Casey Sprake, said unlike the last VAT increase in 2018, the lack of transparency in the untabled 2025 budget ran counter to the SA Reserve Bank’s ongoing efforts to manage inflation expectations and shield the most vulnerable from rising prices through interest rate policy.

“In fact, SARB Governor Lesetja Kganyago has even suggested lowering the inflation target from 4.5%, the midpoint of the current 3% to 6% range, further underscoring the disconnect between fiscal and monetary policy,” Sprake said.

“By opting for a VAT hike, National Treasury has chosen one of the more regressive fiscal measures, placing it at odds with SARB’s mandate to protect purchasing power.”

Cosatu’s Matthew Parks said there would always be differences in style, for example between people, especially in heated situations though the focus was on fixing the State, growing the economy and creating jobs.

“SARS has a key role to play in particular in raising revenue as it has done before with remarkable success. We welcome that the SARS Commissioner has made important proposals to raise revenue which we support by boosting compliance with existing tax legislation,” Parks said.

The Institute for Economic Justice (IEJ) in a statement said the budget shortfall were a political cul-de-sac of National Treasury’s making, noting that in the first year of the last VAT increase, National Treasury had predicted VAT collection of R348bn yet SARS only managed to collect R325bn - around R22bn less than expected.

IEJ said the budget to be tabled in March would need to go beyond a reversal of the proposed 2 percentage point VAT increase from 15% to 17% and revise the fiscal framework as a whole.

“This will not be possible unless we find our way out of the political cul-de-sac that National Treasury has presented to the ANC leadership in government. This is symptomatic of National Treasury’s broader policy failing,” the IEJ said.

“What the National Treasury should be offering is a thoughtful and ambitious programme for how public spending can transform lives and our economy, accompanying this with the mobilisation of the necessary revenue, secured progressively.”

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