Analysts say tax collections may again undershoot target

2018-10-23 20:03 - Lameez Omarjee, Fin24
(iStock) ~ Fin24

Low economic growth will likely have a negative effect on the amount of tax revenue that can be collected, analysts have warned.

National Treasury set a target for the South African Revenue Service to collect R1.345 trn, but there are doubts that this is achievable.

Speaking at a panel discussion ahead of the mini budget, Mazars national head of tax Mike Teuchert said that tax collections would depend on the level of economic growth.

"If the economy trudges well, we will be in a position where we can reach targets," he said.

Momentum Investments Sanisha Packirisamy said in a report on mini budget expectations that lower-than-expected growth signalled a possibility that Treasury could undershoot collection targets.

SA has entered into a technical recession, following two consecutive quarters of negative growth during the first half of the year. As a result, the market consensus growth rate projections have been revised downwards, she explained.

Packirisamy cited the International Monetary Fund's GDP growth estimates for SA, which have declined from 1.5% as at July 2018 to 0.8% in October 2018. The IMF also revised down projections for 2019 growth from 1.7% to 1.4%.

The SA Reserve Bank also cut down its growth projection from 1.7% to 0.7% at its last Monetary policy Meeting in September.

Momentum Investments expects the economy to grow by less than a percent, at 0.8%. Momentum also expects Treasury to revise down its forecast from the 1.5% it projected in February.

"An expected downgrade to Treasury's growth projection for 2018 and 2019 implies its February 2018 tax targets are likely to be missed," Packirisamy said.

However FNB Chief Economist Mamello Matikinca said that the year-to-date numbers for August that the revenue collection for the 2018/19 fiscal year are up at 11.2%, compared to the budget review target of 10.5%.

Treasury has collected 36.6% of this year's projection - it is in line with historical collection levels over the past several years, said Matikinca. "What is important to note, however, is that this is the first year where VAT has been increased, and which should have put collection rates slightly ahead of previous years’."

Matikinca said that VAT collections are up 19.5% for the year-to-date compared to the full-year target of 16.4%.

Finance Minister Tito Mboweni will deliver the mini budget in Parliament on Wednesday, October 24. 

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