Tax collection severely affected by pandemic

Tax collection was severely affected by the pandemic due to the magnitude of the pandemic shock on economic activity, with tax revenue over the four quarters ending 31 March 2021 contracting by R105.9 billion or -7.8%, to R1 249.7 billion compared to the pre-pandemic level of R1 355.8 billion of the previous year.

According to the 2021 Tax Statistics joint publication of Sars and the National Treasury, the severity of the contractions in tax revenue was clear across all the tax types, but more severe regarding domestic taxes and taxes on international trade linked to economic activities that were most affected by lockdown measures.

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Total tax collection

The total tax revenue Sars collected increased from R1 144 billion in 2016/17 to R1 249.7 billion in 2020/21 and therefore grew at a compound annual growth rate (CAGR) of 2.2%, significantly lower than the CAGR of 9.0% in the previous five-period from 2011/12 to 2016/17.

The largest sources of tax revenue were still personal income tax at 39,1%, corporate income tax at 16.4% and value-added tax (VAT) at 26.5%, making up 81.9% of total tax revenue collections.

The tax-to-GDP ratio moderated from 23.8% in 2019/20 to 22.5% in 2020/21, primarily due to annual reductions in the revenue collected from personal income tax, value-added tax, and domestic specific excise duties.

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Demography of tax payers

An analysis of the personal income tax payers shows that 2.091,559 (40.1%) of assessed taxpayers were registered in Gauteng, with 687,261 living in the Johannesburg Metro and taxed on an average taxable income of R481,209.

Other interesting facts about tax payers are:

• Just more than a quarter, 1.365,098 (26.2%) are between 35 and 44 years old
• Just more than half, 2.792,845 (53.6%) are male and 2.420, 951 (46.4%) female
• Assessed taxpayers had a combined taxable income of R1.8 trillion and a tax liability of R407.2 billion, with an average tax rate of 22.4% compared to 22.3% in the previous tax year
• Income from salaries, wages and other remuneration as well as pension, overtime and annuities, accounted for 91.6% of total taxable income.

Out of the 812,306 companies assessed by September 2021 for tax year 2019, 24.0% had positive taxable income, while 48.3% had taxable income equal to zero and the remaining 27.7% reported an assessed loss.

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Value added tax (VAT)

In 2020/21, 79.3% of active VAT vendors were companies or close corporations and they contributed 92.9% to domestic VAT payments and accounted for 91.2% of VAT refunds. Although individuals made up 15.3% of VAT vendors, they contributed 2.4% of domestic VAT payments and received 1.2% of VAT refunds.

Import VAT made up 13.3% and customs duties 3.8% of the year’s total tax revenue collected, resulting in a 17.1% aggregate, slightly below the 17.5% average over the preceding five fiscal years. The share of these taxes to GDP decreased to 3.8% from the preceding five-year average of 4.1%, with import VAT recording 3.0% and customs duties at 0.8%.

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Customs duties

Vehicles, aircraft and vessels (20.1%), textiles and clothing (19.0%), machinery and electronics (13.8%) and food, beverages and tobacco (13.4%) made the largest contribution to customs duties.

Food, beverages and tobacco imports made up 97.5% of the specific excise duty total, largely driven by cigarettes (37.1%) sourced mainly from Switzerland and whiskies (35.4%), imported mostly from the United Kingdom.

Vehicles, aircraft and vessels (56.7%), with 30.1% of the total consisting of luxury vehicles from Germany, as well as machinery and electronics (38.6%), with 63.2% consisting of electronic devices mainly from China, made the largest contribution to the assessed duty total.

The overall effective customs duty rate in 2020/21 was 2.8% compared to 3.2% in the previous year. Key commodities with the highest effective duty rates were footwear and accessories at 24.5%, hides, skins and leather at 19.5%, textiles and clothing at 14.5%, food, beverages and tobacco at 9.8% and vehicles, aircraft and vessels at 6.9%.

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Other taxes

Other taxes and collections included capital gains tax, transfer duty, mineral and petroleum resources royalty, Southern African Customs Union (SACU) payments and diesel refunds. In 2020/21, capital gains tax of R16.4 billion was raised, with R8.4 billion from individuals and trusts and R7.9 billion from companies.

A total of R173.1 billion was raised since the introduction of capital gains tax in October 2001, with R80.9 billion from individuals and trusts and R92.1 billion from companies.

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Pandemic once in a lifetime event

Sars commissioner, Edward Kieswetter, and Dondo Mogajane, director-general at National Treasury, said in the foreword that the pandemic can be classified as a once in a lifetime event, due to its severe impact on the cost of lives and the disruption of economic activity worldwide.

“Government budgets were affected globally by contractions in tax revenues and increases on spending programmes to save lives and transfer income to those adversely affected by the pandemic.”

Kieswetter and Mogajane say that the world and the world economies experienced the deepest and fastest recession since World War II in 2020 and South Africa’s economy and health system were not spared the devastating effect of the pandemic.

Job losses and decreases in wages had a negative impact on personal income tax, while the pandemic, job losses, low consumption demand, strained company profitability following the hard lockdown coupled with heightened uncertainty in global demand remain key risks to economic growth and revenue.

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Tax relief

In line with other countries, South Africa also introduced tax relief measures to reduce the impact on the economy, including tax payment holidays and arrangements for deferred tax payments. The total amount estimated for tax relief measures at the special 2020 Supplementary Budget in June 2020 amounted to R70.0 billion, with R26.0 billion estimated to be actual tax revenue relief and R44.0bn deferred revenue payments to ensure that businesses still had cash flow.

At the end of March 2021, the annual tax relief measures granted totalled R38.9 billion, with R9.5 billion for tax revenue relief and R29.4 billion for deferred tax payment arrangements.