Cape Town - The South African Revenue Service missed its first-quarter tax revenue target by R13.1bn, a document in Fin24’s possession reveals.
If this trend continues, it would miss its overall target by about R50bn in 2017. SARS set a collection target of R1.265trn for the year, the document says.
A shortfall of this scale would have a severe impact on Finance Minister Malusi Gigaba’s Medium Term Budget Policy Statement (MTBPS) in October, where he will need to find extra revenue to allocate to budgets planned for social grants, state-owned entities, departments, provinces and municipalities.
The country's 2017 budget started the year with a deficit of R149bn, which was 3.1% of the country's gross domestic product (GDP).
"It's no secret that we are in a very difficult financial situation as a result of the poor performance of our economy," Gigaba's spokesperson, Mayihlome Tshwete, told Fin24 on Tuesday.
"The minister has repeatedly said that some of our targets are at risk. The severity of the situation and how we will respond will be elaborated in the MTBPS in October," he said. "Ultimately, government will have to make tough decisions and intensify efforts to encourage investments."
How SARS missed its target
The SARS document, an overview of revenue collection for the year ended June 30, will be discussed at the standing committee on finance in Parliament on Wednesday.
It reveals that SARS collected R275.42bn in the first quarter, R13.1bn lower than its target or printed target (PE).
The massive drop in revenue was mostly due to the following key developments, the report shows:
- SARS collected R1.6bn less import VAT than targeted, which was mainly due to declining contributions in machinery, original equipment components and photographic instruments.
- SARS collected R5.6bn less personal income tax than targeted, mostly due to lower than expected PAYE of R4.7bn. “The lower than expected PAYE was partly due to the early PAYE payments that were received in March 2017 instead of April 2017,” it explained.
- SARS collected R2.2bn less customs duties than targeted, mostly due to declining contributions in clothing, footwear and cereals.
- SARS collected R0.7bn less VAT refunds as real gross fixed capital formation recorded a slower growth of 1% quarter-on-quarter in the first quarter. “Temporary shutdowns by automotive manufacturers for plant upgrades also have a direct impact on exports,” SARS explained.
- SARS collected R0.9bn less in excise duties occurred mostly due to lower collections in cigarettes and tobacco of R1.2bn.
- SARS collected R2.7bn less corporate income tax, mostly due to a decline in tax payments of R2.4bn and lower assessment payments of R0.4bn.
SA exits technical recession
The decline in revenue came at a time when GDP contracted 0.7% in the first quarter of 2017, pushing the country into a technical recession.
However, the country exited this recession in the following quarter, when GDP expanded by 2.5%, meaning the tax collection for the period following the above results should improve.
Gigaba told the Tax Indaba on Monday that although the Budget Review GDP growth projection for 2017 of 1.3% remains at risk, Treasury is optimistic that the GDP will improve in the coming quarters.
He said taxation and economic growth need to be balanced.
“Although the flexibility of the tax system is key to achieving a sustainable fiscal position, higher economic growth must remain as the main objective to reach the levels of social development that this country deserves,” he said.
A key issue is tax compliance. SARS research head Randall Carolissen told the Tax Indaba that the number of outstanding tax returns had jumped 77% in PAYE, 32% in VAT and 87% in corporate income tax, with a similar deterioration in late filing over the period.
SARS commissioner Tom Moyane told the Tax Indaba that limited revenues are due to the 'hidden economy' where cash payments made are not declared.
He said tax morality is needed to ensure the payment of taxes on time.
Gigaba urged “taxpayers to be compliant and pay their fair share”, but said the government must do its part by showing “that the taxpayers’ money is used wisely, that efforts are taken to reduce wasteful expenditure and that taxpayers are treated fairly”.
This comes amid the #GuptaLeaks expose, which has seen media report on large-scale allegations of corruption, irregular expenditure and poor governance at many of the country’s state-owned entities, which use tax-payers’ money to keep the entities running.
There are serious concerns that South Africans could mount a tax revolt.
Patricia Williams from Bowmans said in a company note in May “if one believes that the current use of government funds is wrongful, and one also believes that tax resistance would play a significant role in the collapse of this order, how would one conclude that funding the current government order is the moral choice?”
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