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The PDIA approach and tax reforms: The ICBP on Voluntary Tax Compliance and the South African experiences to date – visit to the Swedish ambassador’s residence

26 June 2023
Amb Sweden
(Photo by CABRI)

On Friday, 5 May 2023, His Excellency Mr. Håkan Juholt, Ambassador of Sweden to the Republic of South Africa welcomed CABRI, the STA, and the South African teams participating in the International Capability Building Programme (ICBP) on Voluntary Tax Compliance at his residence in Pretoria.

The session provided an opportunity for His Excellency to hear from participants from the South African Revenue Service (SARS) and the National Treasury, about the lessons from tackling tax compliance problems in SA, using the PDIA approach taking a VTC perspective, as well as sharing success stories and progress thus far.

During the session, the teams highlighted the usefulness of the PDIA approach to tackling complex problems. Overall, participants appreciated that it provides a useful framework for analysing and diagnosing problems and adopting an approach that facilitates incremental change whilst navigating the political economy constraints. It also facilitates broad engagement in reform processes, in such a way that allows the constraints and perspectives of all stakeholders to be considered – including that of the taxpayer, which is often neglected.

Participants highlighted that understanding taxpayers’ incentives is critical to driving voluntary compliance. Particularly in the South African context, the biggest test for the Tax Administration is to gain taxpayer trust, which is constrained by the negative public perceptions of the government and the lack of service delivery in many areas. However, SARS continues to be singled out as one of the most effective, efficient, and trustworthy government institutions. Therefore, there are opportunities to advance voluntary compliance despite the current political challenges.

Finally, it was also noteworthy that the approach has allowed for meaningful progress to be observed, often in a very short period – as outlined in the table below.

Problem Progress
Deterioration in voluntary compliance levels of taxpayers. In particular, the on-time filling rates of small businesses for Income Tax have been declining over the years, with PIT at 52.8% and CIT at 38.5%. The revenue loss resulting from the non-compliance of registered small businesses represents at least 12.5% of the R1.112 trillion SARS revenue target for 2020/21. Strengthened engagements and communication with small businesses on filling compliance by sending welcome packs, implemented nationally. Achieved a 96% success rate during the 2022/3 period. A project aimed at facilitating the implementation of 14 recommended actions in the service offering to small businesses to address late filing has been initiated -2022/3 period. Small business CIT on-time filing has increased by 24.7% in 2022/3 compared to the previous financial year.
The registration, licensing, and accreditation process make it difficult for traders in Customs and Excise to access both domestic and international trading space. Reviewed RLA Education Strategy and simplified pre-registration education content. Reviewed the registration process which led to a cumbersome process for registration and licensing of traders being reduced to 7 steps, from the previous 21 steps.
Based on studies done, 42% of SMMEs in South Africa are not registered for tax. SARS currently does not have adequate data or make use of data optimally to broaden the SMME tax base and make it easier for SMMEs to voluntarily comply. The team started analysing third-party data to understand how it can be used optimally to improve compliance by SMME. The initial findings suggest that the number of SMME’s that are economically active, but not registered for tax, could be as many as the registered SMME’s. This has led the team to reformulate the problem as “third-party data suggests that the number of SMME’s that are economically active but not registered for tax, could be as many as the registered SMME’s. This is unfair to those that pay their taxes and contribute to public goods and services. Increasing voluntary Compliance across SMME's could lead to R (x) billion in revenue, whilst enhancing fairness and trust in the system.

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