Increase in tax collection, the silver lining in Godongwan…



Better-than-expected corporate and personal revenue collection has boosted South Africa’s public finances, with the gross tax revenue estimate revised up by R83.5 billion to R1.68 trillion. .

Finance Minister Enoch Godongwana delivered the Medium Term Fiscal Policy Statement (MTBPS) speech on Wednesday 26 October at Cape Town City Hall.

He said improved revenue collection has not only strengthened the government’s short-term cash position, but also helped it reduce the deficit and mitigate persistent and emerging risks.

Most of this tax windfall is expected to disappear over the next two years. As such, the government says it will not rely on “transitional” revenue gains to fund permanent spending increases; rather, it will use them to reduce risks and contingent liabilities.

The Ministry of Finance’s main concerns are the country’s debt burden and debt servicing costs: Godongwana says taking a prudent approach to debt reduction will help stabilize public finances and reduce risks budgets.

On revenue collection, Godongwana said gross tax revenue is now estimated to be R92.6 billion higher over the 2022 Medium Term Expenditure Framework (MTEF) period than the estimates presented in its budget. February 2022, but this is a projection associated with “uncertainties”. These revenue projections have changed rapidly before, the minister warned, as seen during and after the Covid-19 pandemic, adding that any downward revision would place the current fiscal strategy under significant pressure. If the aggressive tightening of global monetary policy translates into a sustained slowdown in global growth, South Africa’s fiscal outlook could deteriorate as revenue collection falters and debt service costs rise. .

Structural economic constraints, such as unreliable electricity supply, inefficiencies in network industries and high cost of doing business, pose an additional threat to growth, and failure to address them could put further pressure on tax department.

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Treasury says while increased revenue will be used to increase spending on health, education and free local government services, infrastructure and safety and security, some will also be earmarked for deficit reduction budgetary.

The revenue outlook during the year is positive, with strong inflows in the first half of the 2022/23 financial year. As high commodity prices have eased, corporate tax collections have picked up, which the ministry said bodes well for the rest of the year. But those projections are highly dependent on a stable power supply, global growth and a further escalation of Russia’s war in Ukraine.

“We’re doing all of this in a global environment that’s not necessarily supportive,” Godongwana said. “We are dealing with domestic headwinds, with electricity supply leading the way [concern].”

He said that despite the geopolitical environment, at the national level, tax collection was favorable, but “we must continue to reduce debt service costs”.

Compared to the February budget, the gross tax revenue estimate has been revised upwards by R83.5 billion, largely due to better than expected tax collections, upward revisions to growth short-term tax base and strong corporate tax collections.

Companies contributed R332 billion to the tax authorities; individual tax collections R596.1 billion; dividend tax of R36.2 billion; excise duty R55.5 billion; customs duties of R72.6 billion; ad valorem excise duty of R4.8 billion; and others R68.4 billion. Fuel tax and VAT collection have been revised downwards: the former by R8.5 billion to R80.6 billion, while VAT collection has been adjusted by -5% at R434.9 billion.

Fuel levy collections are expected to be lower than expected due to the fuel levy relief offered in the first half of the year.

Key revenue collection factors include:

  • Higher profitability in the manufacturing and financial sectors, with historically high contributions from the mining sector;
  • Significant import volumes and prices contributing to strong customs duty collections;
  • A recovery in incomes and better bonuses for employees in the financial sector (even if employment growth remains weak);
  • Revised VAT recoveries, as higher VAT refunds “more than” compensate for improved VAT receipt. VAT refunds averaged R25.1 billion per month in the first half of the financial year, mainly due to higher capital expenditure in the financial sector and imports of manufactured goods. The decline in household disposable income weighed on domestic VAT collections.

The tax-to-GDP ratio is expected to rise to 25.3% in FY 2022/23 from 24.9%.

In the medium term, tax revenue is expected to increase to R2,040 billion, or 25.4% of GDP, with a tax-to-GDP ratio and nominal revenue expected to exceed pre-Covid projections. BM/DM

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