Flood of illegal fags leads to missed targets

IT is amazing that, despite the growth rates for the 2013-14 fiscal year, the South African Revenue Service is spot-on for the budgeted tax collection of R899-billion. This has saved South Africa from tax hikes that were widely predicted prior to the national budget speech.

Personal and corporate taxes are collectively R10-billion over target. And despite the misery in the retail sector, VAT collection will fall short only by R4billion. So where do problems remain?

South Africa was persuaded by the tax purists to replace the 10% secondary tax on companies with dividend tax at 15% with effect from April 1 2012. The increased rate was supposed to compensate for the additional exemptions inherent to dividend tax. But it did not. The result: dividend tax is falling R6-billion short of the R23-billion target.

Perhaps the reduced dividends tax rate on some foreign-held companies is too generous. Or was the generous exemption applied to dividends paid to retirement funds underestimated? The good news is that the Treasury has resisted the temptation to increase the dividend tax rate.

Excise duties are also R2-billion below target. Are we smoking and drinking less? Beer and wine drinkers have slightly exceeded their targets, although spirits sales are down. But the country has a problem with contraband cigarettes coming from Botswana and Zimbabwe.

Every packet of contraband cigarettes sold in South Africa costs us R11.60 — excluding VAT. In 25 years of smoking 20 a day, that is a loss of R233 000 per smoker at current inflation rates.

Contraband cigarettes used to be a feature of township life. But I am told if you ask nicely you can get them at many small retail outlets. Certainly, many students are smoking contraband without even knowing why they are cheaper.

SARS is stepping up the war against contraband cigarettes. It has identified 15 major distribution points and confiscated cigarettes worth more than R1-billion, but it is estimated that 400 million illegal packs are sold annually.

Fuel-levy collection is also R1.6-billion down. Does that mean South Africans are finally learning to drive less? I hope so.

By Matthew Lester

Source: Sunday Times

Photo: by Sophie Smith 

Matthew Lester is a professor at the Rhodes Business School, Grahamstown