SARS tax warning

Tax collections fell R22 billion short of the Finance Minister’s February budget estimates for the first five months of the 2024 financial year as corporate income taxes dropped significantly. 

South African Revenue Service (SARS) deputy commissioner Johnstone Makhubu told the 10th Tax Indaba that they have also seen a sharp increase of 14% in VAT refunds. 

Makhubu attributed this to an increase in imports and the effect of higher inflation on business expenses. 

South Africa’s electricity crisis, lack of demand for manufactured goods, erratic foreign policy and overregulation have exacerbated the country’s economic activity decline, translating into a concerning decrease in revenue collection. 

In particular, the mining sector is contributing far less than the previous year as commodity prices have declined, Transnet’s collapse has prevented the export of minerals, and load-shedding has disrupted their operations. 

Makhubu said SARS expects tax revenue to grow at 2.6% year-on-year, substantially below the 6% expected in the February budget. 

The National Treasury is under increasing pressure to take action to address South Africa’s rapidly deteriorating public finances. 

One of the measures they are considering is freezing new hiring and cutting spending on infrastructure, travel, and events.

Makhubu told Business Day that SARS closely monitors collections from the mining and manufacturing sectors and VAT refunds. 

The continued high level of VAT refunds reflects the impact of inflation on company expenses. However, it also bodes well for the economy as it indicates a pickup in investment spending.

Much of this increase in investment spending is due to the installation of alternative sources of energy generation from private companies. 

Earlier this week, the National Treasury warned the government that a tax increase or significant spending cuts were needed to continue funding the R350 Social Relief of Distress Grant (SRD Grant).

Should the government want to continue funding the SRD Grant, the National Treasury suggested a two percentage point increase in VAT.

The other option is to cut numerous government initiatives, including visible policing, the expanded public works programme, and the mine health and safety inspectorate.

Other initiatives that face the chop include welfare support, environmental protection, and intervention programmes on food security and informal settlement upgrades.

Godongwana said South Africa’s economic growth and tax revenue have been hampered by the energy crisis, with record load-shedding levels and logistics problems.

The National Treasury revealed that the budget moved to a deficit of R143.8 billion for July, the largest since 2004 and wider than the R115.5 billion forecast by economists.

The Finance Minister said that next year’s general elections make balancing the budget more difficult.

“During an election, nobody wants to increase taxes, but everybody wants to increase expenditure to buy votes. You can’t have both,” he said.

“I said in February that if some of the things we are funding now become a permanent fixture, we must find a revenue source for them.”

He referred to things like the R350 SRD Grant, which was introduced during the Covid-19 pandemic.

Over the weekend, President Cyril Ramaphosa said the R350 grant laid the foundation for introducing a Basic Income Grant (BIG).

He said the successful implementation of the R350 grant has shown that the government can roll out a BIG of a similar nature.

Godongwana cautioned against thinking that things that were easily funded during a commodity boom and revenue overruns can continue.