On Wednesday, the 2nd of July 2014, the South African Revenue Services (SARS) made presentation of its strategic vision and plan to the Parliamentary Standing Committee on Finance. As part of its presentation and typical of many South African public institutions, SARS claimed easy victories concerning its record on revenue collection, which is its primary mission.
At the end of the SARS Presentation, the Chairperson of the standing committee on finance attempted to coerce the committee to agree that SARS is overall doing very well and should be applauded for the work done so far. The Economic Freedom Fighters objected to this notion and narrative, because we strongly believe that SARS is dismally failing to collect maximum revenue from the private sector, in particular the producers of natural and mineral resources.
Here are the facts:
1) The overall contribution of private sector into the national budget is less than 20%, and this is despite the reality that South Africa boosts one of the biggest corporates in the African continent and the world in both the financial and resources sectors. Nominally, this means that the tax contribution of all businesses in South African is less than R200 billion, meaning that the whole corporate tax cannot afford to fund the entire education system of South Africa, which in the current financial year is allocated R220 billion.
2) The contribution of mining sector in the national revenue is less than R25 billion, despite the fact that South Africa is the richest country in the world in terms of mineral resources. This means that the entire contribution of mining into the national revenue cannot fund the primary and higher education of KwaZulu Natal, whose budget for the current financial year is R38 billion.
3) There are known instances of transfer pricing, base erosion, and profit transfers which characterise the South African corporate sector currently, and SARS has not done anything about that. Under these phenomena, corporates that produce natural resources (particularly Mining companies) create subsidiary companies outside South Africa, and sell all their mineral resources to themselves on a cheaper rate, so that they pay as much less tax as possible in South Africa. This phenomenon is ongoing in South Africa and even the BEE players in the Mining industry are involved in transfer pricing.
4) The corporate sector is involved in massive tax evasion, which most possibly amounts to more than 25% of South Africa's Growth Domestic Product, and SARS does not have a cogent and clear mechanism to combat this phenomenon.
Because of these observations, the EFF refuses to stand on roof tops and praise SARS because we do not celebrate mediocrity. The EFF refuses to celebrate a revenue collector which fails to collect maximum revenue from a mineral resource rich South Africa, and whose more than 60% of income is reliant on Personal Income Taxes and Value Added Taxes. As a resource-rich country, South Africa should be generating adequate resources and revenue from the natural and mineral resources and the entire private sector.
The EFF will not join into the band of those who are singing 'the good story to tell' when all socio-economic indications point to a South Africa bedevilled by a crisis of structural unemployment, poverty, and inequalities. The EFF will applaud SARS if it can persuasively deal with the phenomena of base erosion, transfer pricing, and profit transfer in a cogent and open way. The attempts of the Chairperson of the Standing Committee on Finance to impose a unanimous decision on the observation that SARS is doing well was rejected, because the Committee officially noted the objection of the EFF.
The EFF has thus far raised the issue of transfer pricing the Standing Committee on Finance, and the Portfolio Committee on Mineral Resources, and will consistently raise it until clearly defined action is taken. As part of this, the EFF will release a detailed perspective on what so called South African companies have been doing to escape taxes in the country. The EFF Parliamentary office will recurrently and consistently brief all South Africans of developments in Parliament because we are an accountable organisation, which involves the people in all our work.