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Will South Africa increase tax revenue in the 2019 budget?

Improving the debt-to-GDP ratio involves raising revenue, reducing costs and expanding the tax base to raise revenue from wider sources.

As the sun has set on 2018 (albeit with a number of economic statistics still to be reported) the sun has risen on the year 2019 with the anticipated budget speech.

2018 was characterised by “Ramaphoria” that then met recession and ended with economic challenges, albeit at significantly lower levels than it could have been.

According to the South African Reserve Bank’s (Sarb) Monetary Policy Committee (MPC) gross domestic product (GDP) is expected to grow by 0.7%, 1.7% and 2% in real terms between 2018 and 2020 respectively. During the same period, the current account deficit is expected to grow from 3.6% to 4.1%, putting further pressure on South Africa’s debt-to-GDP ratio.

The World Bank has referred to South Africa’s plan to further subsidise higher education as ‘fiscally unsustainable’. The World Bank qualified this statement by saying: “The cost of post-school education and training will more than double to R172.2 billion ($12 billion) by 2022, or 2.5% of gross domestic product, from R65.4 billion in 2017”. In October, National Treasury announced that the gross debt-to-GDP ratio is expected to stabilise around the 60% mark in 2023/24. 

This paints a somewhat grim expectation of what can be expected in the 2019 budget speech, but will this expectation be realised? Improving the debt-to-GDP ratio involves raising revenue, reducing costs and ultimately expanding the tax base to raise revenue from wider sources. This may sound like a simple task but South Africa faces a monumental struggle against unemployment and social inequality which places strain on the available resources to meet the needs of the economy. This places National Treasury in a delicate position heading into the 2019 budget speech. The South African tax base is already severely strained and a number of the available revenue streams are simply over-extended at this stage. The three major revenue streams as a percentage of total tax revenue are depicted in Table 1:

Table 1: Top three revenue streams (2017/2018)

Personal Income Tax

Company Income Tax

VAT

38.1%

18.1%

24.5%

Source: Sars tax statistics

Vat was raised from 14% to 15% in the 2018 budget speech. This was the first Vat increase in 25 years and was met with widespread criticism concerning the impact of the increase on lower income households. It would be highly unlikely that the National Treasury would alter this revenue mechanism given that it was increased as recently as last year and is seen as a regressive tax instrument as it places more financial strain on the poor.

Company income tax for corporates currently stands at 28%. Individuals may think that this is the rate that can be altered to raise additional revenue; however, a number of considerations must be taken into account. It is true that any additional revenue raised from sources that are not directly from consumers will benefit consumers – but this would be counterproductive given President Ramaphosa’s drive to attract foreign direct investment. Raising the company income tax rate would make South Africa a less attractive investment location as a rise in the tax rate would reduce the potential for profits.

Personal income tax has become the largest contributor to total tax revenue collected, however, the number of tax assessments has been declining as illustrated in Table 2.

Table 2: Number of personal income tax assessments

Tax year

Number of
taxpayers
assessed

2014

     5 991 934  

2015

     5 672 322  

2016

     5 365 552  

2017

     4 898 565  

Source: Sars tax statistics

Table 2 indicates that the personal income tax burden is being spread across fewer and fewer individuals. Currently, the personal income tax revenue stream has been taxed to capacity as consumers deal with the current difficult economic times. This provides very limited scope for altering the personal tax rates in any meaningful way.

This provides National Treasury with a conundrum of where to source the additional revenue. If the debt-to-GDP ratio approached 60% by 2023/24 (as expected), it would place severe strain on the fiscus to service rising debt costs while maintaining service delivery. Heavily indebted state-owned entities are a further drain on available funds, however, restructuring these organisations could result in job losses which South Africa cannot afford given its persistently high unemployment rate.

2019 is an election year and history suggests that during an election year, controversial decisions (such as hiking tax rates) will be avoided in the interest of not alienating the voters. The double-edged sword is that if revenue is not increased, South Africa will move closer towards unsustainable debt levels, however given the timing, it is unlikely that drastic changes will be made. How National Treasury reacts to the current and future economic landscape will be particularly interesting when the eyes of the nation and the world fall upon the finance minister when he delivers the budget speech.

Bryden Morton executive director of 21st Century and Chris Blair is leadership & sustainability CEO, at 21st Century.

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Where did those million taxpayers go?

A drop of 1 000 000 taxpayers from 2014 to 2017?

And what is the estimate for 2019?

OK, assuming the table in the article reflects the number of taxpayers and not the inefficiency of SARS. The rate at which the number of individual taxpayers is decreasing should be causing panic in the red aisles of govt. This is the oil which fuels the dreams of the socialist state. The decline would not be surprising due to the evisceration of formal industry by ANC policies and emigration. The rate at which this is happening seems to be accelerating with a drop of approximately 9% between 2017 and 2018, compared to 5% in the previous 2 periods. If this trend continues in 2018, then South Africa will have had between 22% and 26% less individual taxpayers in 2018 compared to 2014. If this continues through 2019 then the change in number of taxpayers relative to 2014 will be between -26% and -32%. (between 1.57m and 1.93m fewer individual taxpayers) This is huge. Meet the power of compounding.

If this trend is real, South African tax revenue is entering a death spiral.

Much of the young (largely white) professional class emigrated fairly early in their careers over the past 20 years due to AA/BEE and a country in obvious long term decline. More than 80% of my school and uni classes left.

The tax take was held up for a long time by high earners, late in their careers so this loss of fairly low-earning young people wasn’t so noticeable at first.

But the old high-earners are retiring now leaving a vast gap of high-earning talent that is now abroad.

I dont believe it will be a death spiral, in the sense it goes down to zero. It will just be resetting a much lower stable number, more typical of a Tanzania or a Kenya.

Emigrated to Zimbabwe, Angola, Mozambique and Rwanda – better prospects.

….wait for the big A.I (4th industrial revolution)

The banks will lead with the culling of jobs en masse

Some opportunities will emerge but bureaucratic suffocation will stifle most from nurturing

Emigration will accelerate

What about the fact that the threshold for submitting a tax return has risen dramatically, so those under R300k or so don’t need to submit a return? Not sure if that is what is being measured under assessed, as in total submissions.

The Middle Class Salary earner are taxed out of Existance so hike VAT , Hike Petrol Taxes & other Taxes that ALL have to pay & spread the burden OR simply stop the ANC /EFF Corruption.

Well, taxing the middle class out of existence is the plan. Communists don’t want a middle class.

Tha t is the only brain power in government – keep taxing petrol, etc – Work ethic and effieiency have not made it tp theirand the Unions radar screen

The paying taxpayer is emigrating and the non-paying illegal immigrant is immigrating (entering illegally).

This is the cruel reality for all socialist states – just as they finish building a “world class revenue service”, they run out of taxpayers……

The ANC does not care about election year and controversial raises in tax (except VAT) as the vast majority of their voters are consumers,not contributors, of tax.

The average tax payer last year paid roughly R64 000 to income tax. The drop in taxpayer base quickly adds up to billions of rands of lost income tax. What I can’t seem to find is stats on why the number is dropping so rapidly. Lost jobs, tax avoidance, emigration, death rate of tax payers higher than that of those registering for tax, or likely a combination of all of the above. Very concerning indeed.

Music from 1971 – Ten Years After Band

Everywhere is freaks and hairies
Dykes and fairies, tell me where is sanity
Tax the rich, feed the poor
‘Til there are no rich no more?

Population keeps on breeding
Nation bleeding, still more feeding economy
Life is funny, skies are sunny
Bees make honey, who needs money, Monopoly

I’d love to change the world
But I don’t know what to do
So I’ll leave it up to you

Increasing tax revenue is quite easy, just get one of the biggest industries in the country, the taxi industry, to start paying taxes. How can you have a massive industry like this not paying taxes or is the Government afraid they will get violent and block the freeways. Remember the taxi ‘recapitalization ‘plan’? It didn’t happen, the taxi industry just gave Government the middle finger. If these tactics work then more will follow. I believe a investigation into the relationship between Government and the taxi industry should be undertaken because it is unheard of that an industry that has killed so many (mainly Black) people can be allowed to act with absolute impunity. Finally, when was the last time you anyone in Government state publicly what they intent to do to fix and transform the taxi industry.

@Colson Some politicians are directly involved in the taxi industry, they own taxi’s

As the money hemorrhages from the country, so do the working people who pay taxes. Once we go to junk and the international funds that are MANDATED to leave a “sub-investment grade country, there will be less jobs and less tax revenue. It’s coming !!!Keep your corporate tax rate HIGH and your social grant programmes HIGH and you will have a serious problem coming down the road. Who would invest in such a corrupt country with the unions fighting business??

Intellect to understand this is absent. Called “ freedom before education “

This article is largely irrelevant. SA has gone past the point of no return. Emigration of the skilled and their capital, is accelerating. You don’t simply lose a million assessments over 5 years, ignore it, create an environment that will chase more of these taxpayers away, and then… expect more revenue?
Will the last taxpayer please blow out the candle as he shuts the door behind him.

All these articles about tax look at the problem incorrectly. This country raises more than enough revenue, the problem is on how much of it goes down the drain and where it spent it is mostly on some hair brained scheme that anyone who has run even a small business will tell you is doomed to failure.

Unfortunately none of the people who do the budgeting for the government have ever had to do a budget that does not have the benefit of being able to fine or arrest the customer if they refuse to pay the price for the goods on offer and or forcing them to pay for goods they do not require or want.

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