Budget: SARS gets R1bn to help with tax collection

2019-10-30 14:12 - Khulekani Magubane, Fin24

Minister of Finance Tito Mboweni gave a sobering forecast of a shortfall in tax revenue collections, saying that Treasury expected to collect R1.37trn this year, about R52.5bn less than its projection in the February Budget.

This follows a shortfall in 2018 of R57bn.

Persistent weak economic growth, low profit margins for companies and weak household consumption mean the difference between projected tax revenues is widening from the rosier estimates projected in the 2019 Budget over the next three years.

National Treasury has downgraded economic growth expectations to 0.5% for the year. Mboweni said revenue shortfalls in a single year have a knock-on effect, widening the gap between forecasts and outcomes in subsequent years.

Gross tax revenue needed to grow at 10.4% this year to reach the 2019 budget estimate, but has only increased by 3.7%. Treasury now projects a shortfall of R84bn in 2020/21 and R114.7bn in 2021/22.

Other factors leading to depressed tax revenues include rising unemployment and a lack of momentum in wage increases.

Depressed tax revenues, as well as bailouts for state-owned entities, mean that SA's budget deficit – the difference between what the government earns and what it spends – is expected to reach 5.9% of GDP in the current year.

The national deficit tops R3trn and this may grow to R4.5trn by 2022/23 – or 71.3% of GDP - mainly to finance an expanding budget deficit.

The rise in the budget deficit will be concerning to Moody's, the sole agency to still assess SA at investment grade. Moody's is set to announce whether it will alter SA's sovereign credit rating on Friday, in the wake of the mini budget.

"Since the tabling of the 2019 Budget, the risk of a sovereign credit downgrade has increased as low economic growth and high government debt, exacerbated by support for state-owned companies, persisted," states the Medium-Term Budget Policy Statement.

"A downgrade by Moody's to sub-investment grade would increase borrowing."

South African Revenue Service (SARS) Commissioner Edward Kieswetter told a briefing in Parliament before the medium-term budget statement that the tax agency’s ability to collect revenues was "sub-optimal".

"If public confidence in SARS wanes, it affects revenue and people begin to feel justified in neglecting their tax responsibilities," said Kieswetter.

Moody's lead analyst for South Africa Lucie Villa told an investment conference in Johannesburg in mid-September that the country's stable outlook provided a low likelihood that its credit rating would be downgraded. Meanwhile, nine out of 17 economists in a Bloomberg survey forecast that Moody’s would change its outlook to negative before the end of the year.

To improve tax collection, Mboweni announced that he would shift resources to SARS to boost capacity. The tax agency will receive an additional R1bn for the next two years to "bolster efforts to combat corruption and improve revenue collection".

The National Prosecuting Authority, meanwhile, will received an additional R1.3bn.