October 7, 2004

By Lynda Loxton

Cape Town - Tax collection had picked up significantly since July on the back of a better economic outlook, but the SA Revenue Service (Sars) was concerned that the planned indefinite tax incentive for urban renewal could have "a major impact" on tax revenue, it emerged yesterday.

Sars commissioner Pravin Gordhan and his top officials were briefing parliament's portfolio committee on finance on their 2003/04 annual report, during which they were asked whether the fact that tax collection had fallen short of projections by R808 million at R302.5 billion last year indicated that "the big dividend from tax reform had reached its limit".

Gordhan doubted whether Sars was "nearing the end of the rosy road" as the tax gap still remained in the region of R20 billion and, given continued investments in skills and technologies, more and more sophisticated tax scams would continue to be uncovered.

But 2003/04 had been "a very unpredictable year" because of the slowdown in the economy and the problems experienced by mining companies, which had "significantly reduced" tax coming in from companies as well as individuals, he said.

After a slow start during the current year, collections had picked up strongly from July and Sars had now collected more than budgeted for in the whole of 2004/05. This reflected burgeoning consumer spending because of higher wage settlements and, therefore, higher tax payments.

Asked about progress in implementing the tax incentives to curb inner city decay announced by finance minister Trevor Manuel earlier this year, Gordhan said Sars and the treasury had been cautious about such tax incentives because of possible fraud and misuse.

After testing and consultation, the rules covering the incentive had been finalised and would be released soon. There appeared to be "a significant appetite" for the incentives among municipalities and property developers.

Kosie Louw, Sars' general manager of law administration, said it had been "very difficult" to come up with a reasonable assessment of the tax losses from the incentive because of the differing sizes of the renewal areas targeted, the buildings involved and the cost of refurbishment.

Sars had also been concerned that if the scheme had no cutoff date, as had been decided by the treasury, it "could have a major impact on the tax take of government over time".