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Cape Town - Outperformance in revenue collection in the categories where tax reform has been announced suggests that more tax initiatives are on the horizon, an economist warned.
Despite a weaker real economy so far this year, only corporate tax revenue is underperforming year-on-year (y/y), Citi economist Gina Schoeman said on Monday, ahead of the mini budget on Wednesday.
Only 34.9% of what was budgeted for in February was collected in corporate tax, which makes up 24% of revenue, versus its five-year average of 36.5%.
She said revenue collections of personal income tax and VAT, making up a respective 34% and 27% of total revenue, are both on track with their respective five-year averages.
However, Schoeman said y/y personal income tax revenue has risen more than usual given the estimated R9.4bn addition from the higher rates announced in February 2015.
The revenue injection from a VAT hike should appease rating agencies, so long as the gross domestic product (GDP) impact is not too negative, said Schoeman.
“But while our ongoing research on the topic suggests that a VAT hike will occur in the foreseeable future, the fragility of the economy and political calendar of 2016 pushes its probable implementation to 2017,” she said. “The question however is: Will the rating agencies remain patient for that long?”
Schoeman said the macro outlook has deteriorated since Finance Minister Nhlanhla Nene’s budget speech in February. “We would expect Treasury’s overall outlook to move closer to that of the SA Reserve Banks’ view currently ...”
Citi Research also assumed Nene will reveal an unchanged expenditure ceiling given Treasury’s “emphasis on respecting this”, but the main risk to our budget deficit forecasts “is how quickly Treasury downgrades its GDP outlook”.
GRAPH: Tax initiatives are working
