SARS is the star of 'The SA Show', but why is it losing its sparkle?

The South African Revenue Service (SARS) has gained a reputation for effectiveness over the years and was once considered a world-class organisation. This success can largely be attributed to the wise use of a variety of types of taxes to raise an income for the government. The tax instruments used by SARS include personal income tax, corporate income tax and value added tax (VAT).

Taxation and inequality

The distribution of income in a society is largely dependent on the tax system. SARS implemented a progressive tax system intended to place a heavier burden on the wealthy in society. This is achieved by introducing higher personal income tax thresholds in order to exempt the poorest, and lower tax thresholds for the top 10% of the income distribution.

The design and implementation of taxes plays a direct role in the degree of inequality in a society. A progressive tax system, such as that of SARS, aims to reduce inequality by placing a greater proportion of the tax burden on the wealthy in society.

Where does it go wrong?

Despite SARS' success in collecting taxes, there are aspects where it goes awry. One of these critical areas is the spending of state funds. Considering the budgeted government expenditure of R2 243 billion for the 2023-'24 financial year, the manner in which these funds are spent is problematic. 

The gross domestic product (GDP) of a country is the sum of several critical factors that reflect the economic activity. These factors include consumer spending, investments, government purchases and net exports. Consumer spending represents the amounts individuals spend on goods and services, while investment includes capital spending by businesses.

Government purchases refer to the amounts the government spends on public services and infrastructure, while net exports are the difference between the country's exports and imports. 

The modern era of media and technology has a direct influence on the international perception of South Africa. Every event, big or small, is quickly and widely spread abroad. This openness has caused a domino effect. A change in investor sentiment, particularly as a result of political instability, may cause a decrease in foreign spending. This decline has direct consequences for the country's capital inflow. A shortage of capital can, in turn, have a negative influence on the ability of the country to grow independently and produce its own products. This situation further contributes to an imbalance in the trade balance and can ultimately impact consumer prices, setting in motion a complex chain reaction of economic consequences. 

With 30 ministers and 36 deputy ministers, South Africa's cabinet is much larger than most of the world's largest economies. The USA's economy is 60 times larger than that of South Africa and experiences almost six times the economic growth annually.

Challenges must be addressed

Although SARS is considered one of the best tax collectors in the world, there are challenges in the society and economy of South Africa that need to be addressed. These include effective spending of government funds, the impact of political instability on foreign investment, and the balancing of tax increases to ensure the economic well-being of the country. SARS and the government must constantly strive for a balance between taxation and efficient management of the national budget to ensure sustainable economic growth.

This post and content is sponsored, written and produced by Everest Wealth.