The 2021 tax statistics released by National Treasury and the South African Revenue Service (Sars) on Wednesday, January 25, indicate a 7.8% decline in tax revenue collections for the fiscal year ended March 31, 2021, to R1 249.7 billion (2020: R1 355.8 billion).
The Covid-19 pandemic lockdown restrictions exacerbated an already “struggling economy” and resulted in a 7% contraction in GDP.
In comparison, the 2008/2009 global financial crisis caused an 18.1% contraction in the economy.
The report provides a detailed breakdown of tax collections for the years ended March 2017 to March 2021, as well as the taxpayer tax return information for those years.
Analysis of tax base
The largest sources of tax revenue are personal income tax (PIT) at 39.1%, corporate income tax (CIT) at 16.4% and value-added tax (Vat) at 26.5%, comprising 81.9% of total tax revenue collections.
In comparison, the CIT proportion before the 2008/09 global financial crisis was 26.7%.
The tax register as at March 2021 includes 23.9 million individuals, 3.1 million companies, 881 000 Vat vendors, and 333 000 importers.
Only 5.4 million individuals are expected to file income tax returns.
The tax-to-GDP ratio decreased from 23.8% in 2019/20 to 22.5% in 2020/21, due mainly due to less revenue collected from personal income tax, value-added tax, and domestic specific excise duties.
However, the “estimated buoyancy ratio or performance of tax revenue relative to the performance of the economy of 3.7 evidences the responsiveness of the tax system of South Africa to short-term fluctuations in economic activities”.
The main drivers of the high buoyancy ratio were lower PIT collections resulting from job losses and decreased wages, and CIT collections which were negatively impacted by the lockdown measures.
The tax base indicates an increase in registrations: individuals (4.1%), companies (6 million), trusts (1%), employers (6.2%) and Vat vendors (5.9%) as well as importers (1%) and exporters (0.8%).
The cost of collecting revenue declined from 0.93% in 2016/2017 to 0.85% in 2021. The international benchmark for developing economies is 1%.
Covid-19 tax relief measures
Covid-19 tax relief included tax holidays and deferred payment relief.
At the end of March 2021, the annual tax relief measures granted totalled R38.9 billion. The cost of tax revenue relief amounted to R9.5 billion and deferred tax payment arrangements granted to taxpayers and traders was R29.4 billion.
Corporate income tax
Company financial year-ends are not required to coincide with the fiscal year. There is a time lag in the assessment of companies, as they are only required to submit tax returns within 12 months after the end of their financial year.
The data collected from provisional tax returns captures at least 80% of the company’s estimated tax payable for the year.
Even though the corporate tax rate is 28%, some industries, such as gold mines and long-term insurers, will have a different tax rate due to “sector-specific tax dispensations”. Tax allowances and assessed losses will also impact CIT.
The decline in the CIT-to-GDP ratio – from 6.3% in 2008/2009 to 3.7% in 2020/2021 – is expected to decline further as a result of the lockdown measures. The company losses suffered in 2020 will impact corporate income tax growth.
Personal income tax
PIT collections comprise three income streams: employees’ tax, provisional tax, and tax paid on final tax assessment.
Aggregate taxable income of assessed taxpayers amounted to R1.8 trillion, the tax liability R407.2 billion, at an average tax rate of 22.4% (2020: 22.3%). Income from salaries, wages and other remuneration as well as pension, overtime and annuities accounted for 91.6% of total taxable income.
All persons formally employed, regardless of their tax liability, must be registered for PIT.
Taxpayers with taxable income below the minimum income tax threshold do not pay tax.
Sars has introduced an automatic assessment process for a number of taxpayers based on data received from third parties (such as medical schemes and financial institutions).
Assessed individual taxpayers with business income comprised 5.3% for the year 2020. Not all individual assessments had been finalised on the date when data was extracted for this publication.
The largest allowance claimed by taxpayers was the motor vehicle allowance (R29.2 billion; 23.1% of total allowances), while the largest deduction claimed was for pension, provident and retirement at R204.1 billion (85.5% of all deductions granted). Pension, provident and retirement annuity payments by employers was the largest fringe benefit at R116.2 billion (59.2% of total fringe benefits).
Vat, customs and excise duties
For the 2021 fiscal year, 79.3% of active Vat vendors were companies or close corporations, contributing 92.9% to domestic Vat payments and accounting for 91.2% of Vat refunds. Individuals (sole proprietors) comprised 15.3% of Vat vendors, contributed 2.4% of domestic Vat payments, and received 1.2% of Vat refunds.
The largest contributors to customs duties in 2020/21, were Vehicles, Aircraft and Vessels (20.1%); Textiles and Clothing (19%); Machinery and Electronics (13.8%) and Food, Beverages and Tobacco (13.4%).
The overall effective customs duty rate in 2020/21 was 2.8% compared to the 3.2% in the previous year. Key commodities with the highest effective duty rates were Footwear and Accessories at 24.5%; Hides, Skins and Leather at 19.5%; Textiles and Clothing at 14.5%; Food, Beverages and Tobacco at 9.8% as well as Vehicles, Aircraft and Vessels at 6.9%.
Key risks to economic growth
Treasury and Sars say the key risks to economic growth and revenue remain the Covid-19 pandemic, job losses, low consumption demand and strained company profitability following the hard lockdown, coupled with heightened uncertainty in global demand.