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The Citizen
a day ago
- Business
- The Citizen
‘We have a National Treasury problem': Fuel levy hike defended amid criticism over tax strategy
At least R3.5 billion in revenue would be lost by not increasing the fuel levy, according to National Treasury. Petrol pumps are pictured at a filling station in Melville on 20 January 2021. Picture: Tracy Lee Stark The National Treasury has defended its decision to increase the general fuel levy in the budget 3.0 amid criticism over its broader tax policy. On Friday, officials from the Treasury and the South African Revenue Service (Sars) appeared before Parliament in a joint meeting of the Standing Committee on Finance and the Select Committee on Finance. They were responding to public submissions on the fiscal framework and revenue proposals, which outline South Africa's economic policies, revenue projections, and government expenditure limits. This follows the tabling of Finance Minister Enoch Godongwana's third national budget for the 2025/2026 financial year, after months of political impasse. The budget includes a fuel levy increase of 16 cents per litre for petrol and 15 cents for diesel, effective from 4 June. However, the Economic Freedom Fighters (EFF) are challenging the hike in court. National Treasury's revenue projections Treasury's head of tax and financial sector policy, Christopher Axelson, addressed the committee on the revised revenue outlook. Axelson noted that revenue projections had decreased by R61.9 billion compared to the budget tabled in March. This decline was driven in part by the withdrawal of proposed increases to value-added tax (VAT) and adjustments to zero-rated items. 'That increase was reduced slightly, but it still required a large amount of additional revenue to make sure we have a fiscally sustainable trajectory for our debt and debt-service costs, and because of that, this May 2025 budget does include R18 billion in additional revenue for 2025/2026 and has R1 billion in tax relief in 2026/2027,' the Treasury official said. He also indicated that a further R20 billion in unspecified tax policy adjustments is anticipated for the 2026 budget. To fund expenditure priorities, Treasury has opted for a range of tax measures, including no changes to personal income tax brackets or rebates, an inflationary increase in the fuel levy, and above-inflation hikes in excise duties on alcohol and tobacco. Diesel refund relief for primary sectors was also announced. ALSO READ: Budget 3.0: Fuel levy replaced VAT hike but is it the better option? Axelson pointed out that past personal income tax increases had failed to raise the intended revenue, while corporate income tax remains 'highly volatile'. 'Corporate income tax increases are the most damaging to growth, and if you reduce growth, it reduces the tax bases as well, so it is not as effective.' Axelson pointed out that a VAT increase was the most efficient revenue-raising option but had to be scrapped due to opposition. As a result, a bulk of the revenue shortfall was addressed by not adjusting personal income tax and rebates for inflation. He also explained that Treasury has aimed to avoid increasing taxes over the last five years in an effort to support economic recovery, adding that the country's tax system was 'progressive'. National Treasury defends fuel levy hike Moreover, Axelson responded to comparisons between the fuel levy hike and a VAT increase. 'The quantum is very different. The VAT increase over three years would have raised about R75 billion. Increasing the fuel levy by inflation is closer to around R12 billion.' He defended the levy hike, arguing that it had not been raised in the previous three budgets. 'Part of that was due to the very high oil, petrol and diesel prices [but] those have been coming down lately. The recent non-adjustment in the March budget was to provide relief for VAT.' READ MORE: VAT reversal overshadowed by fuel levy hike Axelson emphasised that the fuel levy is a significant source of state revenue, contributing about 5% to total tax revenue. 'This is a specific tax, a cents per litre, so these kinds of specific taxes, which are the same as excise duties, they need to be adjusted by inflation; otherwise, the real value of that tax will go down over time.' He warned that Treasury would lose about R3.5 billion in revenue by failing to increase the fuel levy. 'The vast majority of the tax revenue increase is all on the personal income tax side. Around R16.7 billion of the R18 billion in increases is all on personal income tax.' Watch the meeting below: Axelson told the committee that various alternative revenue proposals – such as eliminating the employment tax incentive (ETI), increasing corporate income tax, introducing a wealth tax, and partially adjusting tax brackets – will be considered in the 2026 budget. 'A lot of them are very good and interesting proposals which we are going to have to consider very carefully and hopefully have a more consultative process before the next budget.' He added that although the finance minister has the authority under the Customs and Excise Act to implement an interim fuel levy adjustment via a notice in the government gazette, Parliament has the right to intervene. 'We do hope the notice will be published quite soon [but] Parliament may decide to intervene [as] there is legislative oversight.' Tax policy criticised Civil society and political parties reacted strongly to the Treasury's presentation. The Budget Justice Coalition, one of the organisations that made submissions, rejected claims of a progressive tax system. 'Our tax system can look progressive on paper, but it doesn't actually work that way, and we know that all too well in a country that is marked by some of the highest levels of inequality,' the organisation's chairperson, Matshidiso Lencoasa, said. She argued that South Africa's tax policy burdens the poor, while wealthy individuals and corporations continue to exploit loopholes to their advantage. READ MORE: Fuel levy pain: Brace for possibility of petrol price hike in June Lencoasa further criticised the proposed VAT and fuel levy increases, describing them as 'blunt instruments' that would place a heavier financial strain on the country's most vulnerable populations. Pieter Faber, senior executive of taxation at the South African Institute of Chartered Accountants (Saica), also expressed concern. Faber said the institution cannot support further tax increases in an already high-tax environment, especially amid rising national debt and ongoing concerns about the lack of government accountability, as highlighted in the Auditor-General's report on local government this week. Fuel levy increase under scrutiny MK Party MP Des Van Rooyen criticised the delayed implementation of alternative proposals. 'My expectation was that most of the inputs would be accommodated in this budgeting cycle,' Van Rooyen said. He asserted that the fuel levy increase was more regressive than the scrapped VAT hike. 'There should be a thunderous response against this proposal.' Democratic Alliance (DA) MP Pieter Britz called for a fairer distribution of the tax burden. READ MORE: EFF files urgent interdict to stop proposed fuel levy hike EFF MP Omphile Maotwe strongly disagreed with Treasury's position on the fuel levy. 'National Treasury refuses to increase corporate income tax for ideological reasons and not practical ones. They oppose a wealth tax because their underlying assumption is that the state must serve those who already have wealth.' She also challenged the narrative of a progressive tax system. 'The claim that our tax system is progressive cannot be taken seriously,' Maotwe said, accusing the department of ignoring alternative proposals. 'It is clear that we have a National Treasury problem,' she added.
Eyewitness News
a day ago
- Business
- Eyewitness News
SARS expects to see impact of increase in tax collection efforts from Q2
CAPE TOWN - The South African Revenue Service (SARS) said the impact of it ramping up its efforts to collect more taxes would be felt by the second quarter of this financial year. Treasury again warned Parliament on Friday that it would increase taxes next year in efforts to plug a R20 billion budget shortfall in the next financial year if SARS doesn't produce the money. SARS is receiving R7.5 billion over the next three years to bolster its capacity to collect more taxes, which it estimates could be as much as R50 billion a year. ALSO READ: • Expanding list of tax-free food items won't benefit poorer households: Treasury • Treasury defends fuel levy increase Last week, SARS Commissioner Edward Kieswetter, said the aim was to employ at least 1,700 more staff to allow it to go after those not paying taxes. On Friday, the revenue service's head of legislative policy tax, Franz Tomasek, told Parliament's finance committees it was still in the process of training and appointing more debt collecting staff. "Our initial focus is going to be on undisputed debt. But that will need to be underpinned by revenue recovery measures targeting the tax gap as we move into the outer years. The results will be reported monthly, and bearing in mind the ramp-up period, we are expecting those efforts to start gathering pace by the beginning of the second quarter of this year." Tomasek said he hoped these efforts would mean the finance minister would reconsider his intention to raise taxes next year.
IOL News
4 days ago
- Business
- IOL News
Cosatu warns One Stop Border Bill's silence on illegal migration and exports threatens jobs
The Oshoek border post. In a Time Release Study (TRS) conducted jointly by the South African Revenue Service and the Eswatini Revenue Service last year, the turnaround time for trucks exporting cargo to Eswatini at the Oshoek/Ngwenya port of entry in Mpumalanga had been reduced from 1 hour 42 minutes to just 10 minutes. Image: Timothy Bernard/Independent Newspapers Cosatu has said the proposed One Stop Border Bill's silence on the uncontrolled explosion of illegal migration and exports flooding into South Africa threatens local jobs, businesses, value chains, and revenue needed to fund public services. This is as the federation also criticised the Department of Home Affairs' reneging on an agreement to table the Bill at Nedlac for engagement with social partners. In submissions to the Portfolio Committee on Home Affairs on the One Stop Border Bill on Tuesday, Cosatu, along with the Catholic Parliamentary Liaison Office, raised concerns about the rampant corruption at various border posts. Cosatu Parliamentary spokesperson Matthew Parks said administrative areas of concern included the silence on specific roles of the Border Management Agency (BMA), South African Revenue Service (Sars), the South African Police Service, and the SA National Defence Force. Parks said the respective legislative mandates need to be affirmed, upheld, and stated clearly in the Bill to ensure attempts by the BMA to usurp the constitutional role of Sars or any other separate state institution are not allowed to happen, even by default, as well as to control corruption at the border posts. "We are worried by the impression created by the Bill that it seeks to fast-track the movement of goods at border posts. This may have the unintended consequence of telling Border Management Authority and Sars officials at the border posts to waive collecting customs due to the state. Collection of customs duties is not merely to ensure the state receives taxes due to it, but also to ensure tariffs put in place to protect fragile local industries, businesses, value chains, and jobs are enforced," Parks said. Parks warned that the government should not be in the business of undermining Nedlac, as it makes the life of stakeholders and parliamentarians easier when issues are presented with already agreed-upon resolutions. "There is real value in Nedlac. As Business and as Labour, we share many values about fixing the state capacity to provide quality public services that labour and businesses require, and economic growth is linked to this. We are having engagement at Nedlac to build that cohesive state and social partners to build those social compacts," Parks said. Cosatu also warned against expediting the process of opening up the country to goods and people without proper safeguards, citing the 1990s when the country opened its borders too quickly for goods, and hence a flood of Chinese T-shirts, goods, and clothes caused 100 000 job losses overnight. "If we struggle as a country to enforce controls at our borders, be it land, sea, or air, how much more the other countries? We had issues under the Southern African Customs Union that T-shirts are allegedly produced in Malawi, Eswatini, etc. We know, relatively or not, they are produced in China, but some local supplier within this country just sold a label that says 'Made in Eswatini,'" Parks said. In a Time Release Study (TRS) conducted jointly by Sars and the Eswatini Revenue Service last year, the turnaround time for trucks exporting cargo to Eswatini at the Oshoek/Ngwenya port of entry in Mpumalanga had been reduced from 1 hour 42 minutes to just 10 minutes, and the import of similar cargo has seen the time spent at the border slashed from 42 minutes to 10 minutes. The study helped identify bottlenecks that led to long delays at the border crossing, as plans were afoot to have a one-window experience for truck drivers processing freight. BUSINESS REPORT Visit:
IOL News
4 days ago
- Business
- IOL News
Sars imposes R30 million tax bill on businessman: a caution for directors and shareholders
A recent Tax Court ruling highlights the importance of accurate record-keeping for directors and shareholders, as Sars imposes a staggering R30 million tax bill on a businessman due to undeclared loan accounts. Image: File photo. A recent Tax Court ruling in favour of the South African Revenue Service (Sars), which treated large loan account balances as undeclared income, serves as a warning to directors and shareholders to properly manage these accounts, maintain accurate records, and be prepared to explain the origin of funds when Sars flags loans as unexplained. The case of Taxpayer D v CSARS (IT 35476, 25 February 2025) dealt with the question of whether the taxpayer had satisfactorily explained a large sum reflected as a loan account owing to him in one of his wholly owned companies. The dispute was factual in nature, relating to the source of the funds for the 2014 to 2017 tax years. The case revealed a staggering tax exposure. Sars assessed the taxpayer on undeclared income of R37.1 million, as well as R20 million in undeclared interest income linked to shareholder loan accounts. This resulted in a total assessed amount of R57.1 million. Besides the tax obligation, the Court ruled that Taxpayer D also had to pay interest accrued, an understated penalty, and legal costs, including the cost of two counsel and an expert witness. Taxpayer D is a successful businessman who owns several companies. The structure is always the same, and he is the sole shareholder and director. According to Court papers, he earns income from his companies in the form of salaries, dividend income, and interest on shareholder loan accounts. Judge J. Manoim said in his judgment that the subject matter is the taxpayer's personal affairs, which are a product of how he used and accounted for his loan accounts in one of his companies. The manner in which the taxpayer operated the accounts of his companies gave rise to the case. The taxpayer used these loan accounts to fund other companies in his group. It was noted in the judgment that: 'When he did so, he would earn interest income from the company he lent the money to, which would then be credited to a loan account he had in the company. What added to the complexity was that he also, in his capacity, borrowed from some of his companies to fund another, whereafter he paid interest to his lending company. Generally, he paid a lower interest rate when he borrowed compared to the higher interest rate he received when he lent.' Sars said Taxpayer D gave inconsistent explanations for the cause of the unexplained increases in the balances of the loan accounts. The amounts were not supported by the income declared in Taxpayer D's returns. Key Legal Principle: Burden of Proof Rests with the Taxpayer Referring to these amounts, the judgment reads: 'The amounts are large. It called for an explanation from the taxpayer, but he did not come to give one [in the Tax Court].' The Court reaffirmed that the burden of proof lies squarely with the taxpayer, as set out in section 102(1) of the Tax Administration Act. In this case, not only did the taxpayer fail to discharge the burden of proof, but his failure to testify also suggests that if he did, his testimony would elicit facts unfavourable to his case. Therefore, the Court also ruled that drawing an adverse inference was warranted. The Court further held that it was not enough for Taxpayer D to rely on reconstructed figures or second-hand explanations, such as from his accountant who testified. Sars' expert witness with 40 years' experience discredited the evidence by Taxpayer D's accountant as 'guesswork', and described the reconstructed financial records as methodologically flawed. Without credible, firsthand explanations, Sars' assessments stood. What This Means for Business Owners and Shareholders This case illustrates Sars' readiness to assess both unexplained capital increases and accrued interest on shareholder loan accounts. Inadequate records, multiple accounts, or unclear audit trails can significantly increase tax exposure. Without clear, contemporaneous documentation, Sars may treat inflows as taxable income or impute interest. To mitigate these risks, business owners, directors, and shareholders must ensure their loan accounts are consistently reconciled and reflect legitimate economic activity. Take Proactive Steps Before Sars Flags Your Account Following the Budget Speech on May 21, 2025, Sars announced that the 2025/26 financial year revenue estimate of R1.986 trillion, as outlined by the Minister of Finance, places a responsibility on the agency to implement revenue-raising initiatives. 'By dutifully implementing its compliance programme, Sars is well positioned to collect all revenue due to the fiscus. Sars will specifically accelerate work on collecting all debt, with a specific focus on undisputed debt', Sars said in a statement. This sends a clear message that taxpayers can expect intensified scrutiny from Sars, which aligns with its Project AmaBillions, a special initiative focused on tax debt collection over the next three years. Taxpayer D's case serves as a warning to all. Had he taken the matter seriously from the outset, his liability could have been reduced by at least R7.5 million. Any taxpayer who does not understand their loan accounts or is uncertain about the accuracy of their accounting records should consult a tax attorney to proactively engage with Sars and secure the best possible outcome. * Langton is a tax attorney, and Mornay Bornmann is an attorney: cross-border taxation at Tax Consulting South Africa. PERSONAL FINANCE
The South African
4 days ago
- Business
- The South African
SARS cracks down on PAYE, what it means for you
The South African Revenue Service (SARS) is focusing on PAYE compliance. This is not just a routine check. Employers across the country must make sure their PAYE submissions are accurate and current, or they will face serious consequences. SARS is focusing more on improving revenue collection as the country deals with financial challenges. PAYE is now a top priority for recovery and enforcement. SARS is hiring 500 new staff members to help with its campaign. They plan to add a total of 2,000 people. Their goal is to raise R70 billion in extra revenue over the next three years. Most of this money is expected to come from addressing unpaid PAYE taxes. SARS PAYE compliance crackdown: The issue of accountability According to Business Tech, the issue of employer responsibility is very important right now. SARS has made it clear that there will be no tolerance for delays or mistakes with PAYE. Companies that do not comply could face penalties, audits, and even legal action. Finance Minister Enoch Godongwana has warned that the government will cut spending if SARS does not meet its revenue targets. As a result, collections from PAYE have become very important to help avoid these cuts. SARS Commissioner Edward Kieswetter has emphasised that this effort is not just about collecting revenue; it's also about rebuilding trust and improving the tax agency's systems. By focusing on SARS PAYE, they want to enhance transparency, accountability, and long-term financial stability. What does this mean for employers? SARS is serious about collecting PAYE, and this is not just a short-term effort. Employers must urgently check their payroll systems and make any needed corrections to stay compliant. SARS now has the resources and systems to enforce these rules effectively. Do you think SARS is doing enough to make sure employers follow the rules for PAYE? Or is this effort to enforce compliance overdue? Let us know by leaving a comment below, or send a WhatsApp to 060 011 021 1 Subscribe to The South African website's newsletters and follow us on WhatsApp, Facebook, X and Bluesky for the latest news.
