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Tax revenue could miss mini-budget forecast by more than R10bn

Corporate and personal income tax collections have slowed since October.

Tax revenue for the current fiscal year could fall short of the medium-term budget policy statement (MTBPS) forecast by at least R10 billion after corporate and personal income tax collection slowed in the last few months of 2018.

Tax revenue growth has not been as buoyant as expected, and as economic growth continues to disappoint, finance minister Tito Mboweni is under pressure to rein in spending to keep the country’s growing debt burden and deteriorating fiscal numbers in check. This as the election approaches and ratings agencies keep a watchful eye. His budget speech will be delivered on February 20.

In his MTBPS in October, Mboweni revised the tax revenue projection for the 2018/19 year down by R27 billion due to a Vat refund backlog, an underestimation of refunds and slower corporate income tax collections.

Since October, revenue performance has deteriorated significantly, says Kyle Mandy, tax policy leader at PwC.  

Given the deterioration and the downside risks, PwC expects revenue to fall short of the revised MTBPS number by at least another R10 billion – R37 billion less than the 2018 budget forecast for 2018/19.

In February 2018, Treasury expected revenue to grow by 10.6% in 2018/19, but by December, growth had only reached 7.6%. Amid a slowdown in economic growth, corporate profitability suffered and corporate income tax revenues, which were expected to grow 6.5% during the full fiscal year, saw a contraction of 1.1% in the fiscal year through December. Personal income tax collection also disappointed (see below).

Source: PwC

“The downside risks for the remainder of the year are significant as well, so it [the shortfall] could actually be worse than that and I wouldn’t be surprised if that goes out to about R15 billion by the time we get to the end of the year,” Mandy says.

But even though revenue collection continues to disappoint, and new spending pressures emerge, analysts generally don’t expect to see significant tax hikes in this year’s budget. Treasury has arguably run out of room to increase tax collections through further rate hikes with regard to personal and corporate income tax and Vat, its three main revenue sources.

There is however the possibility of small tax increases in some of the relatively minor tax instruments, Mandy says. The one exception is personal income tax, where the tax brackets for higher income earners may not be adjusted to grant full relief for inflationary salary increases.

“Overall we think Treasury is going to struggle to put through even R10 billion worth of tax increases in this year’s budget if they have appetite to put through anything like that number at all,” Mandy says.

PwC expects the budget deficit to widen from a projected 4% of GDP in 2018/19 to 4.3%. The deficit for 2019/20 is expected to deteriorate from 4.2% to 4.7%.

The projection assumes that expenditure does not grow beyond what was previously planned. Eskom is a major point of concern.

PwC chief economist Lullu Krugel says if things don’t go as planned on the expenditure side, the budget deficit could hit 5%, which would be “really detrimental”.

“The bottom line is that the turnaround keeps on moving out and the deficit becomes larger and obviously the ratings agencies are not comfortable with that.”

Although South Africa’s budget deficit is broadly in line with some of its emerging market peers, these countries – particularly India and China – have much higher economic growth rates, which puts them on a firmer footing. China’s economy is expected to grow 6.2% this year and India’s 7.4%. South Africa’s economic growth forecast for 2019 is around 1.3%.  

Sources: National Treasury, BMI & PwC

Krugel says ratings agencies are hoping that South Africa’s economic growth improves to a level closer to 3%.

She says the likelihood that Moody’s will downgrade South Africa to junk is quite high, particularly against the background of the woes at Eskom.

“We are going to get junk status this year unless something significantly changes,” she says.

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The load shedding does not help either. An article on this site mentioned R2 billion loss per day for the economy in case of stage 2 load shedding and probably much more at stage 3 and 4. Since SARS collects more than 20% of the GDP as different taxes, a month of load shedding would mean more than R10 billion in additional loss off revenue.

Around R20 Billion is more likely.

I came across an other article today which claimed load shedding costs 5 billion per day.

This drop in revenue collection must be of huge concern to our ANC government. How do people expect the politicians to make a dishonest living if they, the taxpayers, don’t pay their tax ? People, if we do not all stand together and pay our tax diligently as required, then a rich part of our South African heritage and culture of theft and corruption will disapear forever and our disfunctional, failed state for which the ANC work so tirelessly, will go up in smoke.

The tax-revolt is gaining momentum. The president of the country initiated the tax-revolt and appointed Tom Moyane as Commissioner at SARS to implement and advance the tax-revolt. The Nugent Commission tells us that every effort was made by the top structure of the ANC to destroy the Revenue Service. The ruling party leads to tax-revolt.

This is the only plan and strategy the ANC ever implemented and executed successfully. ANC policies lead to the destruction of the economy and the implosion of the tax base. Tax revenue is the ultimate indicator of the efficiency of government policy. All socialist economic policies eventually appears as sinkholes in the Treasury. The ANC voters will disappear into this sinkhole when government starts printing the money to pay social grants.

I do not think this is due to a tax revolt. Lower corporate profits are probably a much bigger reason. Tax revolt is a bit of red herring. For salaried employees it is impossible to avoid taxes, VAT and sin taxes are impossible to avoid.

For provisional tax payers that are able to structure their taxes one needs to distinguish between tax avoidance (paying as little tax as possible legally by exploiting loopholes) and tax evasion (not paying tax). Tax avoidance cannot be seen as part of a tax revolt. If taxpayers are only now starting to deduct expenses that they could always have deducted because they have decided to revolt, well then I am very surprised that they have lasted as long as this in business.

If youn are evading tax – by not making your provisional payments on time for instance, you will get hit by fines and interest and you will in all liklihood end up in jail sometime. Think all this talk of a tax revolt is irresponsible, some people might actually listen and end up in a lot of trouble

Sensei was using irony to make a point, Notewarren. Your reply is way off the mark.

Griet, I bow to you as a social gesture of respect.

True If the biggest businesses in SA decided to start paying taxes into a trust as opposed to Sars. It would give them the necessary power and mandate to start forcing the ANC to make changes. Give them a list of demands and one the demands are met the taxes are released. You know like people do with landlords who do not do he necessary maintenance.

This is the most effective way of changing the power dynamic back to the people away from government. A clean way for a nation to hold their government accountable if the rule of law has been diminished.

Viva tax revolt viva??!! What ever the true reason is, hopefully the perception is that the tax payer is sick and tired of the ANC stealing and wasting our money.

correct…one way to avoid “paying tax” is to stop buying.

Dear friends. I am somewhat perturbed by this decrease in tax collections. Surely our revenues did not perform that bad taking into account that the top structure of the ANC is still coining it. There is not one entrepreneur to be found in the top structure, not one guy that made an honest buck, yet they just seem to prosper way beyond imagination. Therefore, let’s buckle up and let the entrepreneurial juices start flowing. We need to keep these okes fat and flourishing. By ensuring that they can steal our money and send it overseas, we ensure that there is suffient resources overseas for us to borrow against at inflated interest rates. As former colonists we also have to accept our responsibilities to particularly Europe. If they don’t get our stolen money, they will be bankrupt within a month. I know this is tough but let’s do our best hey? Advice for Tito: We need to start an oxygen tax. It’s not fair that South Africans are allowed free and clean air. While it’s still comparatively clean, unlike our water, let’s tax every individual for it. The tax base is nearly 60m people wide and you can get the parents to pay for their children out of their SASSA earnings. However. beware that the top 10% of this new revenue stream will have to go to some ANC bank account in Europe. Another source of revenue is to tax our solar lights. We had to instal them as a security measure during loadshedding. However, who said the African sun is for free?

Finally I found a traffic intersection where I canary my luck with motorists to collect a few shekels in order to pay my taxes. However, it is not a full time placement because it only works when cars have to stop when the traffic lights are working. With load shedding, cars only slow down so I cannot ply my new begging skills as Eskom have made it impossible for me to do an honest 8 hours a day of begging. So, with the income I get now, it will below the threshold, so I am offering you, SARS, an advance apology that you get nothing from me in the foreseeable future.

SARS response: “Apology accepted. Regretfully, you are below the annual tax threshold”.
“Please proceed to your nearest SASSA office to collect a state pension”.

Missing the budget by 10 Billion ZAR is really not a big deal in the bigger picture.

There is a lot of upside in the South African economy.

Watch the resources sector, it is going to give the economy the boost it needs.

It is not the amount that should worry you, it is the trend.

The last time it was 50 Billion ZAR? perhaps short memory?

Celebrate, it is exactly 1 year since the uncle resigned,
the biggest gift to South Africans.

Yes the potential is there. I am just worried how it will be unlocked with a failing power grid

With a large % of tax paying South Africans running for the hills and immigrating, this is no wonder! Add to that the loss of revenue due to load shedding and there is the tax loss right there. I am amazed at how many of my friends and family have left SA, tax payers. Gone for good.

I think you are right. It is not dramatic enough to maybe show up in the numbers but it is a continued erosion with a few thousand, normally high income, individuals leaving every quarter

Also my bet is that the ANC tenderpreneurs trying to supply diesel etc to the peaking plants at inflated prices do not pay much tax.

This is very concerning. Combined with the need to bail out Eskom the math just does not make sense anymore. Do not see a lot of op-eds on this in the media, nothing amongst the noisemakers on twitter either.

Yet the latest identity political issue will generate reams and reams of comment

As expected. CR17 now needs to defend himself against the Uber insult – being an aprtheid spy.

So instead of focussing on the country running ever closer to insolvency he now needs to defend himself against something that quite frankly I do not give a damn about. Thanks Terror.

Cue media to rather run with this much more juicy story

Taxing South African royalty, the esteemed killing-machine called the mini-bus taxi industry, should sort out that deficit fairly quickly but then again if Government try the violent response will likely cause them to back-off. Maybe we should all try these ‘tactics’.

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