Taxman wants new ID system for South Africa

South African Revenue Service (SARS) commissioner Edward Kieswetter says the country would benefit greatly from a new unique digital identifier (UID) system.

He said implementing such a system would help close tax loopholes and prevent corruption along South Africa’s revenue chain.

The commissioner made these comments while speaking at the South African Institution of Taxation’s annual Tax Indaba on Monday, 9 September.

Looking at international practices, Kieswetter said revenue services are investing more in the administrative side of taxation. However, he said more must still be done in South Africa.

He says many gaps and loopholes in South Africa’s tax laws can be abused, exploited, or leveraged for corrupt activities.

Kieswetter explained that multiple government platforms, including SARS, the Unemployment Insurance Fund, the National Student Financial Aid Scheme, and the South African Social Security Agency, process payments.

Each of these individual platforms offers opportunities for potential abuse and corruption. He argues that having a UID and accompanying card supported by all government services could help mitigate these risks.

Former finance minister Trevor Manuel spoke on the same panel. He singled out India’s Aadhaar card as an example of a successful UID system.

The system uses a unique 12-digit identifier that stores biometric, contact, and residential data for Indian citizens. These identifiers can be validated with fingerprint or iris recognition.

Payments such as state grants can then be paid directly to the citizen’s banking account, which is also linked to the identifier.

Kieswetter believes a system like this could extend beyond just payments to include any government transactions, including tender applications and tax compliance.

He said these could be linked to the UID to ensure various government departments know who they transact with.

South Africa could roll out such a system rapidly. It was launched quickly in India, which has a population of roughly 1.4 billion people. Doing the same for South Africa’s 60 million citizens should be faster.

The SARS commissioner suggested that the platform be developed in partnership with the South African Reserve Bank’s PayShap system.

Kieswetter noted that undeclared income is one of the most significant tax gaps in South Africa and extends beyond the informal sector to include trusts and other formal industries.

Of the R1.74 trillion collected in tax during the last financial year, R260 billion had to be recovered.

Of this R260 billion, roughly R100 billion was drawn in through artificial intelligence, machine learning, and data science techniques that identified issues like fraudulent refunds.

SARS has also identified large gaps on the incentives side of the country’s tax regulations, and these loopholes are still open to potential exploitation and abuse from advisors, accountants, lawyers, and tax practitioners.

One such example is the Employment Tax Incentive, which encourages employers to hire young job seekers.

South Africa introduced the incentive scheme in 2014 to boost employment rates for young citizens. In return, employers receive a tax incentive to reduce the cost of hiring such people.

The scheme lets employers reduce the amount they pay SARS in Pay-As-You-Earn tax without impacting the wages qualifying employees receive.

However, some employers dupe the system by accepting the tax benefit and then outsourcing the training of these employees without them doing any productive work.

SARS has since amended the laws surrounding the incentive in an attempt to close the loophole.

Kieswetter also pointed out the zero rating for VAT on brown bread as another incentive that can be exploited.

He said South Africans who eat brown bread are generally health-conscious and not considered poor.

“Poor people want to eat white bread,” the commissioner added.

He said a UID system can help close these gaps and shut down corrupt activities in the tax space.