Big tax losses due to alcohol and cigarette ban in South Africa

SARS Commissioner Edward Kieswetter has revealed that SARS has already lost R86 billion in tax revenue because of the lockdown.

Speaking to CNBC Africa, Kieswetter said the ban on alcohol contributed R7 billion to this decline while the cigarette ban contributed R3 billion.

This is, however, only part of the story. Kieswetter said if you factor in downstream taxes from companies and employment, the shortfall from alcohol and cigarettes is R15 billion.

A big concern for the SARS Commissioner is the booming black-market trade in alcohol and tobacco.

He said it is going to take SARS years to root out the corruption and illegal activity which has developed over the last four months.

The lockdown has also hit other taxes hard. Employment taxes are down by R14.5 billion, corporate income tax declined by R16 billion, and VAT is down R14.5 billion.

Kieswetter raised concern that a large portion of these taxes may not return when the lockdown is lifted.

He said many jobs will not return, which will influence employment taxes, while corporate income tax will also show long-term declines because of struggling businesses.

“Here we are talking about real economic capacity which will be lost,” he said.

SARS’s focus is therefore not only on the shortfall because of the alcohol and cigarette ban, but rather the impact on the whole economy.

He said their tax shortfall prediction for the year remains at R300 billion, based on a 7% contraction in the South African economy.

Economic contraction is real

Kieswetter said the reality is that the economic contraction is real. “We can’t get away from that,” he said.

South Africa was already in an economic downturn before the COVID-19 pandemic arrived in the country.

The pandemic and subsequent lockdown have put additional strain on the economy and tax collections.

More bad news for tax revenue is that SARS has lost significant capability and tax compliance levels in the country have declined.

Kieswetter also admitted that a loss of trust in the government, especially with widespread corruption, is impacting people’s willingness to pay tax.

There is, however, some good news. SARS is currently rebuilding its capabilities and it is working to improve tax compliance levels.

SARS will also focus on criminal and other areas of abuse in the tax system, which can bolster the government’s coffers.

Kieswetter said he is confident they should be able to stem the continuous decline in tax compliance.

Lost tax revenue

The table below provides an overview of the decline of tax revenue as a result of the lockdown.

Year-on-Year Tax Declines
Tax Year-on-Year Percentage Decline Year-on-Year Revenue Decline
Employment 9% R14.5 billion
CIT 28% R16 billion
VAT 11% R14.5 billion
Custom Duty 26% R16.7 billion
Excise (including alcohol and tobacco) 47% R21.6 billion
Total 21% R86 billion

Now read: South Africa is in deep financial trouble

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Big tax losses due to alcohol and cigarette ban in South Africa