- December brought in almost R94 billion in corporate income tax, thanks in part to strong profits in the mining sector.
- South Africa’s budget deficit for this fiscal year should be in better shape than previously expected.
- But there are two big risks ahead, warns an economist.
Following a bumper tax month in December, government finances are in better shape than Treasury estimated.
Thanks mostly to strong profits in the mining sector, corporate income tax brought in R93.7 billion in December - compared to R65.9 billion in the same month in 2020.
With three months to go before the end of the fiscal year, corporate income tax already delivered almost R252 billion - compared to R202 billion for the full fiscal year of 2020.
December is traditionally the biggest month for corporate income tax – but this year has been stronger than expected, says Johann van Tonder, economist at Momentum Investments. This has contributed to corporate income tax for the first nine months of the year already representing 87% of Treasury’s forecast for the full year.
Personal income tax brought in R391 billion in the nine months to end-December – R50 billion more than in the same period in 2020. VAT income for December was almost R33 billion, compared to R30.8 billion in 2020.
For the first nine months of the fiscal year, total gross tax revenue came in around R1.134 trillion - already close to the total tax revenue of R1.25 trillion for the previous year.
Conservatively, personal income tax, corporate income tax, VAT, excise levies, the fuel levy and customs duties – which together represent more than 90% of the main budget’s total income – could bring in around R80 billion more than was expected in the November medium-term budget policy statement, says Van Tonder. Only customs duties were below Treasury’s expectations.
"With a bit of luck – if the economy holds – this could more than R100 billion."
The question is whether Treasury will use the windfall to cut debt, or whether they will use it to spend more – or a combination, says Van Tonder. "They should use the money to lower government’s debt burden because [the mining windfall] is a once-off, and not thanks to a sustainable structural improvement in the economy."
Last year, many commodity prices were squeezed higher amid supply disruptions due to the pandemic and lockdown restrictions – while demand for metals recovered faster than expected.
But over recent times, some prices have retreated from their highs, which will subdue local mining profits going forward.
Still, thanks to the 2021 mining tax boon, South Africa’s budget deficit for this fiscal year should be in better shape than previously expected.
There are some major risks ahead, said Van Tonder.
Constitutional Court still needs to rule on a Labour Appeals Court decision that allowed government to renege on a pay increase for the final year of the three-year agreement with civil servants.
If government loses, Treasury will have to find money for backpayments – which will have a substantial impact on spending, adds Van Tonder.
Another issue is the possible extension of the R350 Social Relief of Distress grant, which has not been budgeted for in the 2022/2023 medium-term budget.
"It is very likely that it will be extended, because there has not been an agreement about the basic income grant yet," says Van Tonder.