Friday, October 30, 2009

I predicted this over a year ago

Prof D N Erasmus

The government is running low on money as tax collections are suffering. The former commissioner is now Minister of Finance. I predicted MAJOR cash flow problems over a year ago. The writing was on the wall of SARS Annual Report. See my prediction below:

Tuesday, July 22, 2008


OK. So let me get this right. SARS boasts the following results in 2007:

69 270 audits

This in practical terms means, for a two man team of auditors to conduct 4 (100hr) audits per month, they had 2886 persons dedicated to this task. These audits would earn roughly R1,03bn in salaries, excluding bonuses!

R6,6bn was raised in revised assessments from these audits.

What does this mean? What the short form table of results (in their annual report published on the SARS web site) does not tell you, is that R6,6bn was not collected. That is what was merely assessed through revised assessments. For each R1 spent, they earned R6,6. What’s wrong with that? You ask! Well, a little closer look at the following scant numbers published by SARS, prints the following picture. SARS collected 3.75% of its debt (R17,7bn collected) which we presume is mainly revised assessments (or the like), which is the same type of assessments’ as the R6,6bn – not collected yet. Except for that small 3.75%.

That tells us that 96,25% of the revised assessment debt due to them is bad, or potentially bad. Remember only 3.75% has been collected! Now applying this logic through to the boasted about R6,6bn assessments that their close to 70 000 audits have earned, means that only R247,5m is probably collectable (out of the total R6,6bn). Against a cost of just over R1bn! That’s not good business. They are spending over R1bn to collect R247,5m!

We don’t know all the reasons why 96,25% is not collected of the debt due to SARS, but guesses are out there that a lot of it is improper and hasty audits, giving rise to ‘funny’ numbers for SARS, which are simply not collectable.

Turning to their heightened criminal prosecutions. We see similar statistics emerging. 447 guilty verdicts out of 1909 prosecutions. That is a success factor of only 23,4%. The worst part of it is that 1462 individuals had to be dragged through the shameful process of criminal prosecution. Have you ever witnessed the criminal prosecution of a person? It’s not a nice experience, even if you are not convicted.
These statistics are horrendous. And show a lack of respect and application of Constitutional principles in SARS exercising their important duty of administering tax law and not merely being a monetary hitman!

When will someone start recognising the clear trend that is developing within SARS management, and demand that some of these questions be answered and prove, beyond a reasonable doubt, that my simple analysis is wrong!

Taking this to a positive conclusion for SARS. In light of the obvious bad business sense that prevails in its methodology in audits, they would be better of settling along the lines about to be proposed. Lets recap:

1. Of the R6,6bn, only R250m (rounded up) is collectable;
2. That translates to R3650 per taxpayer audited;
3. Each audit costs R15 000.

If SARS settles all its audits by simply asking for payment of an extra R18 650 from each audited taxpayer it would achieve two things:

1. It will be R15 000 better off per audit, covering its costs (which is not the case now);
2. It would be saving the taxpayer huge sums in tax advisor fees, justifying the R18 650 payment.

In fact, if Mr Gordhan really wanted to stretch the boundaries of being taxman entrepreneur of the decade, he should take his randomness technique of selecting taxpayers for audits, extract 70 000 taxpayers for audit and do the following:

1. Offer them the option of paying R18 650, no questions asked (like an insurance fee) and face no audit;
2. Save R15 000 out of the R18 650 (because he doesn’t need the SARS auditors to do anything);
3. Only audit those who justifiably should be audited after proper investigation;

The effect will be threefold:

1. An extra pot of tax guarantee money for less harassed taxpayers;
2. Less SARS auditors to pay, who are not turning out to be profitable;
3. More successful and focussed audits catching the real tax crooks – not chasing after political agenda’s and slanted random audits (like the one that will be planned against me after publishing this article!)

Watch this space!

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