The Covid shutdown hammered tax collection. Job losses shrunk the base even more

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 the impact of the pandemic reduced total revenue by around R310.6 billion to R1.127 trillion from the original estimates of R1.438 trillion for the fiscal year 2020/21
the impact of the pandemic reduced total revenue by around R310.6 billion to R1.127 trillion from the original estimates of R1.438 trillion for the fiscal year 2020/21

BUSINESS


Revenue under-collection has been a consistent theme over the past few years.

According to the South African Revenue Service (Sars) this is mainly due to the country’s very high unemployment levels and the low levels of business confidence, which have dampened tax morality.

The Covid-19 pandemic also heightened the situation, specifically the impact of the lockdown restrictions on the economy and households.

According to Sars statistical support specialist Mangalani Peter Makananisa, the costs of the lockdown implemented by the South African government in March 2020 led to the reduction in production, household demands for goods and services, global production, supply chains on national exports, and uncertainty on investments.

Makananisa said that, on average, the impact of the pandemic reduced total revenue by around R310.6 billion to R1.127 trillion from the original estimates of R1.438 trillion for the fiscal year 2020/21.

He said the amended average forecast for personal income tax, corporate income tax and value added tax (VAT) were at R532.9 billion, R172.6 billion and R320.9 billion respectively.

They were initially estimated at R575.6 billion for personal income tax, R206.2 billion for corporate income tax and R361.9 billion for VAT.

“The continuation of this shock will further damage both the future economic growth and the state revenue,” said Makananisa, adding that the increase in illegal activities makes it impossible for Sars to reach maximum collection.

Employment was also severely affected by the lockdown. Statistics SA reported that only 81.3% of individuals received pay during the most severe lockdown between March and May last year, while 2.2 million jobs were lost.

The increase in illegal activities makes it impossible for Sars to reach maximum collection.
Sars statistical support specialist Mangalani Peter Makananisa

Investec said personal and corporate income tax receipts which make up over 50% of all tax revenue collected fell by -14.0% and -24% between May and August 2020 respectively, on a year-on-year basis. Investec said excise taxes – a significant form of revenue for government – plummeted by over 65% year-on-year between April and August.

City Press has previously reported that South Africa economy was already in stagnation long before the outbreak of the Covid-19 pandemic.

For the past five years (2015-2019), the country’s GDP averaged only less than 1%. South Africa slipped into a technical recession (two consecutive negative quarterly GDP growth) in 2019 when it contracted by -1.4% in the fourth quarter from -0.8% in the third quarter.

At the beginning of 2020, the economy went into a full recession with GDP contracting by -2% in the 1st quarter of 2020.

South Africa’s economic outlook remains pessimistic with the real GDP expected to deteriorate by -7.2% in 2020, and return to growth of 2.6% in 2021.

In addition, unemployment has worsened from 29.1% in the fourth quarter of 2019 to 30.1% in the first quarter of 2020 with the most affected group being the youth, ages between 25 and 34 years.

The impact of the pandemic reduced total revenue by around R310.6 billion to R1.127 trillion from the original estimates of R1.438 trillion for the fiscal year 2020/21.
Sars statistical support specialist Mangalani Peter Makananisa

The state projects the gross national government debt to increase from R3.26 trillion (63.5% of GDP) in 2019/20 to R3.97 trillion (81.8% of GDP) in 2020/21. Furthermore, by the end of 2022/23, the gross loan debt is expected to reach R4.83 trillion or 86% of GDP.

The tourism industry will be the most affected by the lockdown imposed to the economy in general.

Read: Tourism bleeds jobs and money

PricewaterhouseCoopers (PWC) estimated that 1000 of tourism-related jobs will be threatened; this is adding more pressure to the South African unemployment rate, which is about 30%. The rand weakened by 11% in January and February 2020

Read: Rand, stocks take hit as coronavirus and rating-cut fears bash SA

In addition, unemployment worsened from 29.1% in the fourth quarter of 2019 to 30.1% in the first quarter of 2020 with the most affected group being the youth, ages between 25 and 34 years. The latest quarterly statistics released by Stats SA showed that of the 39.2 million people aged 15 to 64 (the “working age”) in the country only 37.5% of them were working.

The agency shows that the unemployment rate jumped to 30.8% in the third quarter of 2020 from 23.3% in the second quarter. The report showed that the working-age population increased by 146 000 in the third quarter of 2020 compared to the second quarter of the same year.

The expanded definition of unemployment suggests an even worse picture. Stats SA places the expanded definition of unemployment at 43.1% from 42% the previous quarter, 1.1 percentage point increase.

Makananisa said: “To optimise revenue collection, the revenue authority should focus on the shadow economic activities, as it remains the untouched portion of collection and utilisation of special skills in crypto currency movement and payments, applying more advance quantitative methodology that leverages statistics and computer algorithms.”

He added that this might offset some of the loss of revenue due to the pandemic and lockdown in present and future fiscal years.


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