At the South African Institution of Taxation’s (SAIT’s) annual Tax Indaba on 9 September, SARS Commissioner Edward Kieswetter highlighted the potential benefits of a unique digital identifier (UID) system for South Africa, Cape {town} Etc reports.
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He argued that such a system could close numerous tax loopholes and reduce corruption across the revenue chain.
Kieswetter noted that internationally, revenue services are increasingly investing in administrative improvements for tax collection, which have proven effective. However, he pointed out that South Africa still has significant gaps and opportunities for tax laws to be exploited and for corruption to infiltrate.
He cited various government platforms like SARS, UIF, NSFAS, and SASSA as examples where abuse and corruption risks exist. According to Kieswetter, implementing a UID system with an accompanying card usable across all government services would mitigate many of these risks.
Former finance minister Trevor Manuel supported this idea, referencing India’s Aadhaar card as a successful digital system. Aadhaar, a 12-digit identifier, stores residential, contact, and biometric details, enabling authentication through fingerprints or iris recognition. This system facilitates direct transfers of state subsidies to bank accounts linked to the Aadhaar number, ensuring efficient delivery and targeting.
Kieswetter suggested that a similar system could extend beyond payments to include all government transactions, such as tenders and tax compliance certifications. This would provide better tracking and reduce opportunities for fraud.
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Manuel emphasised that India’s system was implemented for 1.4 billion citizens swiftly, implying that a similar system for South Africa’s 60 million people should be feasible.
Kieswetter also mentioned the PayShap payments platform, developed with the South African Reserve Bank (SARB), as an example of how a comprehensive platform could operate locally.
In discussing broader tax compliance issues, Kieswetter highlighted undeclared income as a major tax gap. This issue spans from the informal sector to formal markets like trusts. According to BusinessTech, of the R1.74 trillion in tax collected last year, R260 billion was recovered through discreet compliance actions, including R100 billion from AI and data science techniques identifying fraudulent refunds.
He also noted gaps in tax incentives and accounting rules that are prone to exploitation by accountants, lawyers, and tax advisors. Kieswetter explained that tax laws often create exploitable loopholes, with schemes designed to benefit the vulnerable sometimes ending up benefiting those who do not need them.
He cited the Employment Tax Incentive (ETI) programme, intended to encourage hiring young workers by allowing employers to reduce their PAYE payments. Instead, some employers exploited the system by outsourcing training without providing actual work. Although the laws have since been updated, Kieswetter emphasised that such loopholes persist in various areas.
Kieswetter also criticised specific tax incentives, like VAT zero-rating for brown bread, which inadvertently benefits health-conscious consumers rather than the poor.
He argued that tax laws and incentives often end up benefiting those who are not the intended beneficiaries, and closing these gaps through better systems could significantly reduce misuse.
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