This year’s tax receipts were lower than anticipated, largely because of a stronger rand and thus lower company profits. Does this not expose your recent success in revenue collection as being because of the windfall of a weakened currency?
We only had a windfall in 2001 and 2002. The success has been due to our proactive direct intervention. For instance, 37% of the extra money we collected between 2001 and currently has been due to the enforcement of section 19(3) of the Company’s Act, which requires companies to make tax provision payments that are aligned to its current results.
You once spoke of a tax gap of R30-billion a year. How big is the gap now and in what areas do you think you have to crack down to close it further?
Every society has a tax gap — the R30-billion was just an estimate. In South Africa the gap is historical and political. It exists because of the “two economies” that President Thabo Mbeki speaks about. On the one hand, you had a tax system that excluded a majority. You also had people who did things like engage in cross-border trade during sanctions, evading tax because it was a “sexy” thing to do.
Where have you enjoyed success in clamping down and where do you still feel there is work to be done?
There are numerous areas. We have closed down leakages in excise by introducing duty at source for the tobacco, oil and liquor industries. We have recovered R2-billion in the past two years from people in tax avoidance who raid the tax base to gain commercial advantage. In VAT fraud, we have a case a month going to court. But in all these areas, there remains a lot of work to be done.
So where has tax morality not taken root?
In a range of areas. There are still people in retail who take chances, by claiming VAT on exported goods that have not been exported or collecting VAT and withholding it. There are high net worth individuals who belong to sophisticated tax avoidance schemes. In between these extremes, there are a lot of varied examples of people who do not comply.
You are about to undertake a review of the formula for taxing the gold mining industry. What motivated this need for change?
Time [the formula has been in place since 1936], circumstances and basically a review for the whole mining industry: we are looking for optimal collection from all sectors. Also, the principle that a gold mine can show a profit and still not pay a tax — and that does not happen in other parts of mining and other industry — needs to be reviewed.
Service levels at the Revenue Service have improved, but, for example, there is still a long turn around time between filing and settling your returns.
Service has improved with the introduction of call centres and service monitoring centres. But we still have a lot to improve. Parts of our backroom office, for instance, still operate manually. We need to get the technology and the people in place and improve our risk management. We need another bout of change. Turnaround time has the dilemma that improved compliance leads to increased volume of work to be processed and thus hampers the process. Turnaround also depends on the complexity of the return
Why have you not heeded the People’s Budget call for a reduction in VAT?
We have competing demands — [there are] some people who will tell you to put VAT up. Much of life is about balance. We have to decide how much of our revenue will be raised through our regressive, indirect tax system, and how much can be raised through the progressive personal income tax. The minister has chosen to use the revenue overrun on individual tax breaks.
The minister expressed satisfaction at the progress of the amnesty process. How long will it be before we see a Gideon Nieuwoudt from this episode?
Look, South Africans were offered a chance to comply with tax and exchange control regulations last February. The chance ends in 10 days, and if you did not take it the law will take its course.
Did you expect to achieve this level of success when you took up your position?
All I knew was that we had to collect revenue. We had five border posts, which I know [from being an activist] and we had passionate people who wanted to do the job. Now [my colleagues at the South African Revenue Service] are trying to turn me into a tax professional.
Trevor Manuel says he serves at the pleasure of the president. Do you serve at his pleasure?
I am appointed by the minister and the president on a five-year contract, which expires in November this year. Then the pleasure kicks in.
What would you like to do next?
Anything creative and challenging.
If you were offered another term, would you accept?
Let us wait and see.