ERS COULD POCKET OVER E500M FROM COLLECTIONS

MBABANE – If a proposed review or amendment of an existing legislation becomes a success, the Eswatini Revenue Service (ERS) could retain over E500 million from revenue it collects annually.

The money would add to the subvention that the tax collector receives from government and would assist in ensuring that it (tax collector) executes its mandate efficiently. That is if a proposed plan to have the entity take about five per cent of the revenue it collects eventually succeeds. Notably, the ERS, which is under the leadership of Commissioner General Brightwell Nkambule, has in the past two financial years managed to collect around E10 billion and more, after having faced challenges brought about by the COVID-19 pandemic.
Five per cent of E10 billion is about E500 million. Having excelled the last year by collecting around E12 billion, the entity would have pocketed about E600 million had the review been effected.

Recently, Members of Parliament (MPs) sought answers following reports that employees of the ERS faced a challenge of not receiving their salaries on time. This, the MPs said, is because the entity is not receiving its subvention from government on time. In response to the concern by the MPs, the Ministry of Finance has said that it is aware of the current unfavourable cash flow position experienced by ERS. The ministry admitted that it has been making monthly releases of ERS subvention to circumvent any negative impact on payment of salaries to ERS staff and that remedial measures are being pursued going forward.

“The ministry, in collaboration with ERS, is currently reviewing and or amending law establishing ERS to ensure that ERS legally retains five per cent of revenue collected to cater for their budget. This best practice has been successfully executed by tax administrations in other countries in the region and globally. This will address the ERS’s cash flow constraints,” reads part of the response from the ministry.

Growth

It should be noted that in recent years, the ERS has recorded significant growth in terms of revenue collection. In its Annual Integrated Report 2022/2023, the ERS reported that it recorded the highest tax revenue growth since 2017/18.  It was mentioned that the 11.6 per cent tax revenue increase was higher than the 6 per cent nominal gross domestic product (GDP) increase projected by the Central Bank of Eswatini (CBE) and the Ministry of Economic Planning and Development (MEPD) and this was characteristic of an improving revenue administration.

The report highlighted that the even though it was two per cent below target, revenue of E12.037 billion in taxes was collected. It was mentioned that the high tax revenue growth was attributed to, in part, the deliberate efforts taken by the organisation to improve customer service and effective revenue improvement initiatives. For the financial year 2021/2022, ERS’ revenue performance was marred by the slow economic growth and impacts of the COVID-19 pandemic and political unrests. As a result, the entity collected a total of E10.786 billion in tax revenues, 10 per cent below the revenue target. The under collection in tax collections was observed across most of the major tax types.

Although the shortfall was E1.235 billion, it was above the previous year by 8.5 per cent. For the financial year 2020/2021, the ERS, just like other entities and companies locally and worldwide, faced the most difficult time due to the COVID-19 pandemic. Total tax revenue collections amounted to E9.945 billion against a target of E11.403 billion, which was a 13 per cent below target performance. The revenue collections showed a shortfall of E1.458 billion on the set target and were also lower than the prior year’s collections by 0.1 per cent.
Meanwhile, for the year 2019/2020, the SRA managed to collect a total of E9.950 billion in revenue, an impressive 10.6 per cent growth that was far above the rate of nominal GDP growth. This collection fell three per cent below the target of E10.295 billion, being a shortfall of E344 million, which was cited as a close margin given the level of economic activity and delays in approval of planned policy related revenue improvements.

Positive

In addition to this positive growth in revenue, the ERS operational cost of collecting revenue, which is an important measure to determining its efficiency as an administration, decreased by 0.2 percentage points to 3.9 per cent, reaching the lowest since inception of the SRA, indicating an improvement in operations efficiencies. The parastatal is currently executing its mandate in accordance with its new 2024 – 2027 strategic plan, which is expected to transform it and provide efficiencies that will make compliance easier for clients, improve trade facilitation and in turn increase revenue collection. The strategic plan contains for strategic thematic areas and objectives that the entity will focus on for the next three years and they include employee experience whose priority is to create of a conducive work environment, with an engaged and productive workforce that possess the appropriate competencies for a digitalised ERS.

In terms of background, the ERS is a semi-autonomous revenue administration agency. It was set up through the Eswatini Revenue Authority Act of 2008 (as amended) and it works within the broad framework of government, but outside of the civil service. The ERS is structured as a corporate entity and strives for operational excellence and efficiency.

Mandate

A commissioner general heads the organisation. It has a governing Board appointed by the minister of Finance. It gets its mandate from the Eswatini Revenue Authority Act, 2008 (as amended).  The ERS mandate includes assessment and collection of all revenue on behalf of government, administering and giving effect to the laws or the specified provisions of the laws set out in the Schedule and account for all revenue to which they apply. The ERS also has a duty to promote compliance with the revenue laws, take measures needed to counteract tax or revenue fraud and other forms of tax or revenue evasion and ensure that all revenue collected is, as soon as reasonably practical, credited to the Eswatini Government General Account.

Furthermore, subject to the provisions of the Act, the ERS has a duty to take such other measures as considered necessary or desirable for the achievement of the purposes or provisions of the revenue laws. In furtherance of its mandate, and in working towards adopting best practices, the ERS is a member of various international organisations, such as the African Tax Administration Forum (ATAF), World Customs Organisation (WCO) and the Commonwealth Association of Tax Administrator (CATA).  Furthermore, it collaborates with the International Monetary Fund (IMF) to improve its efficiencies through conducting assessments, such as the Tax Administration Diagnostic Assessment Tool (TADAT).

In terms of its budget to run its operations, the ERS receives grants from government. In the past financial year, the entity received grants amounting to E463 612 420 from government to facilitate the funding of recurring and capital expenditure incurred and for its daily operations. Just like other parastatals, the entity spends on salaries and wages plus other allowances, provident and pension contributions, plus leave pay provisions.

In the financial year 2022/2023, around E300 million was spent on employees, while in 2021/2022, the figure stood at around E289 million. A fact worth mentioning is that the ERS has for quite some time been regarded as among the highest subvented entities by government. This is according to the report detailing the performance of the country’s state-owned-enterprises (SOEs), which was compiled by the Eswatini Economic Policy Analysis and Research Centre (ESEPARC), which was released in 2021.

Allocation

The report mentioned that despite receiving the highest allocation, the SRA suffered from lack of skilled employees to fully implement and enforce the tax regulations and even operate the software earmarked to do this. At the time, the report highlighted that the ERS was not fully utilising the IT systems due to lack of awareness and knowledge of some of the key functionalities in the deployed systems. In a broad assessment over the years, the report observed that the cost of collection did not seem to show any significant gains in relation to the investment in systems and new methods of tax collection that the institution has made.

“Even though SRA receives the highest share of government subventions, it still needs further funding to expand its reach on the economy for additional tax collection. For example, it still needs investment for capacity building, attachments, taxpayer education and publicity campaigns to improve customer service experience,” the report highlighted. Meanwhile, in neighbouring South Africa, the tax collector, that being the South African Revenue Service (SARS), was recently put on the spotlight after the announcement of a proposed plan to cut its budget, which it receives from government.

However, the South African media reported that some political parties were against the decision. The IOL reported that it rejected the proposed budget cuts to the SARS, citing that the institution in charge of running the nation’s tax and customs services will be severely damaged by the decision. The party has called on the government of national unity (GNU) to ensure that critical institutions are sufficiently funded to give full effect to their mandates. ActionSA MP Alan Beesley was quoted saying that reducing budget cuts will adversely impact the ability of SARS to collect revenue and perform its mandate effectively, potentially affecting the overall fiscal balance sheet.

The proposed budget reflected that SARS faces substantial cuts, with a nominal reduction of E769 million and a real cut of E1.3 billion, which the critics contended would be unworkable.
They argued that rather than cutting SARS’s budget, SARS should be further capacitated to increase revenue collections by targeting the political elite and other criminal syndicates who, through illegal activities, remain outside the tax net.

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