Poor economic growth dragging down tax revenue

Pretoria – Low economic growth of 0.3% in 2016 impacted South African Revenue Service’s (SARS) revenue collection.

This is according to new Finance Minister Malusi Gigaba, who attended the media briefing on the preliminary revenue collection results on Monday. He explained that the projected revenues had been revised down from R1.175trn to R1.14 trn, due to the poorly performing economy.

READ: SARS collects revenue of over R1.14trn

Personal Income Tax (PIT) particularly took a knock. PIT growth had declined to less than 9%, compared to an average performance of 12% previously. “This is a result of the curtailment in the wage bill through lower wage settlements and low bonuses as well as significant job losses in the South African economy,” explained Commissioner Tom Moyane.

The decline in trade also impacted VAT and Customs Duties, explained Moyane. Import VAT declined by 1.3% and Customs Duties contracted by 1.2%, he said. However Corporate Income tax improved by 7%, given the stronger commodity growth.  

Gigaba said that slow economic growth has an impact on revenue collection and tax compliance.

“We are keen that we should support the ongoing plans of government to grow the economy and come up with additional interventions to assist the economy to grow on a robust, sustainable basis,” he said.

If more people become employed and earn incomes, and if more small and medium enterprises (SMEs) emerge as well as more industrial manufacturers emerge then it will increase the tax base.

Ratings agencies

Responding to a question on ratings agencies’ assessment on the country’s sovereign credit rating, new Deputy Minister of Finance, Sfiso Buthelezi said there was no way to guarantee that ratings agencies would downgrade South Africa.

“There is no way we can guarantee what direction ratings agencies will take.”

Buthelezi said that Gigaba and himself had “high level” discussions with ratings agencies Moody’s and Fitch on Friday, before being sworn into their new portfolios.

READ: SA's sovereign credit rating still a priority – Gigaba

At a media briefing on Saturday Gigaba explained that keeping South Africa at investment grade was still a priority, to ensure access to investment capital at fair and manageable interest rates.

Moody’s is expected to release a review on April 7.