Wednesday, 28 October 2020
Cape Town: The gross tax revenue estimate for 2020/21 has been revised down by R8.7 billion compared with the projection in the June Special Adjustments Budget, National Treasury said on Wednesday.
Finance Minister Tito Mboweni said in the supplementary budget in June that National Treasury expected to miss its tax revenue target by over R300 billion this year.
“This deterioration is aligned with revised economic growth projections and the expected performance of the major tax bases.
“Gross tax revenue is expected to be 17.9% lower than collections in 2019/20, or R312.8 billion below the 2020 Budget forecast.
“The tax-to-GDP ratio is expected to decline substantially, dropping from 26.3% to 22.9%.
“A strong and sustained rebound in economic growth is required for the tax-to-GDP ratio to return to levels seen in 2019/20,” National Treasury said.
Tax revenues, which fell sharply during the first several months of the Coronavirus pandemic, have begun to recover.
However, Treasury said monthly collections remain well below 2019/20 levels in many tax categories.
“For example, domestic value-added tax (VAT) collected in the first six months of 2020/21 was 6.7% lower than the same period in 2019/20.”
Treasury said key factors affecting in-year revenue collection include:
• A significant decline in compensation, and therefore personal income tax, due to the lockdown.
• A weaker import outlook, which has reduced VAT and customs expectations.
• A sharp reduction in consumption, lowering domestic VAT collection.
• Downward adjustments in specific excise duties associated with a longer-than-expected tobacco ban.
• Stronger-than-expected corporate profitability, limiting the anticipated reduction in corporate income tax and dividend tax receipts.
VAT, PAYE collection to be bolstered to improve revenue
Improved tax collection and administration continues to be an important element in achieving fiscal consolidation, the National Treasury said on Wednesday.
It said despite several years of mismanagement, the South African Revenue Service continues to rebuild its capacity.
The service’s near-term objectives include finalising the tax gap study in December 2020 to quantify the difference between how much tax should be collected and how much is collected; remaining focused on international taxes – particularly aggressive tax planning using transfer pricing; increasing enforcement to eliminate syndicated fraud and tax crimes and continuing to use third-party data to find non-compliant taxpayers.
In additon, SARS will focus on collecting pay-as-you-earn and VAT debt, and ensuring that outstanding taxpayer returns are filed and liabilities paid.
Tax revenue to increase to R1.5 trillion
The National Treasury said, meanwhile, it expects tax revenue to increase by 25.2 % of GDP over a three-year period.
“Tax revenue is expected to increase to R1.5 trillion, or 25.2 % of GDP, by the end of the MTEF period. The extraordinary shock to economic output in 2020/21 translates into large revenue shortfalls that will persist over the medium term.
“The shortfalls are exacerbated by a reduction in the tax-to-GDP ratio, because the tax system automatically adjusts to reduce the amount of revenue that is collected for a given level of economic activity in the event of a crisis.”
In April 2020, government introduced tax relief measures to provide temporary assistance to businesses and households during the lockdown.
These interventions offered a combination of cash-flow relief through tax deferrals, and direct support through increased incentives to retain lower-income employees and reductions in payroll taxes.
Details on the take-up and effects of these measures will be provided in the 2021 Budget Review.