The South African Revenue Service (Sars) has struggled to meet revenue target collections due to a sluggish economy and its own hollowed-out capacity.
It now faces the double whammy of a rating downgrade by Moody’s and the impact of the Covid-19 pandemic, which will issue an even-harder blow on revenue collections.
“Whatever crystal ball you may look into now, you are likely to be wrong,” said Sars Commissioner Edward Kieswetter, stating that modelling adjustments with respect to the 2020/2021 revenue figures are not an immediate priority.
“What we will do is work as hard as we can with what we have, while remaining vigilant, agile and responsive to an evolving crisis,” said Kieswetter.
He was speaking to journalists on Wednesday at the announcement of the preliminary revenue collection numbers for the 2019/2020 financial year.
Sars collected R1.356 trillion against the 2019 budget estimate of R1.42 trillion, resulting in a deficit of R66.2 billion (4.7% lower than the estimate). The gap is narrowed when compared against the revised 2020 budget estimate of R1.359 billion recording a 0.2% deficit or R3.1 billion less.
Even better was the revenue collected by Sars in the financial year ending March 2020. The net revenue collection of R1.356 trillion was 5.3% more than that collected last year, with nominal growth R68.2 billion.
These figures come against the backdrop of an economy that slipped into a recession in the fourth quarter of 2019, a year that saw economic growth in only one quarter.
“At the start of the year we knew that the challenges we would face would be steep, given the sluggish economy and the state of Sars,” said Kieswetter. “Notwithstanding [that], we believe the revenue result of the year-on-year growth is a credible performance within the current economic environment.”
The top three contributors to the revenue were personal income tax (PIT), which contributed R528.9 billion (39%); value-added tax (Vat), contributing R346.6 billion (25.6%); and company income tax (CIT), which contributed R214.7 billion (15.8%).
While PIT saw an increase in contributions, Vat and CIT numbers declined somewhat, with Kieswetter stating that this was a sign of lower consumer spending and reduced company performance in a struggling economy.
A tougher year ahead
The “separate but intertwined” impact of the Moody’s downgrade and the Covid-19 pandemic will only make things worse.
“Right now companies are already struggling to grow, to create more jobs, and now companies will struggle just to retain those jobs and to stay open,” he said
“The lockdown itself reduces the level of economic activity to only essential goods and services, so the overall impact of the current environment will be significant on economic activity, which translates into tax revenue, which is simply an overlay of what happens in the economy.”
National Treasury announced several tax measures to alleviate the impact of the current crisis on businesses and consumers:
- An additional R500 tax subsidy for employees under the Employment Tax Incentive;
- Sars will accelerate the payment of employment tax incentive reimbursements from bi-annually to every month for compliant employers; and
- Businesses with revenue of less than R50 million will be allowed to pay 20% less in their employee and corporate tax liabilities.
Kieswetter said government is alive to the fact that there will be no “easy fixes” and the interventions will require balancing out extracting revenue from the economy but not so much that you “kill the goose that lays the eggs”.
Can’t let economy stop
“We need to do what we have never done before to reform the structure of our economy, to manage expenditure, [and] reshape and reprioritise the shape of our spend while trying to find new sources of revenue,” he said.
With the growing demands on government expenditure, as the state tries to contain the impact of the Covid-19 outbreak on top of the existing issues – government debt, unprofitable state-owned entities, and a growing wage bill – a decline in tax revenue would “place strain on the budget deficit and the overall fiscal framework”.
In addition to implementing structural reforms and managing the impact of Covid-19, Kieswetter said the economy also depends on the ability and resolve of the state and its social partners to “keep the wheels of the economy going”.
“Even if it is down to an idle,” he said.
“Because the minute it stops completely, the time to restart it will take many more years.”
Brought to you by Moneyweb