Bad news for South African taxpayers

The Finance Minister will likely announce an increase in tax rates in the Budget Speech later this month as the government’s revenue collections continue to disappoint, leaving a gap of R15 billion to be filled. 

This is feedback from financial services firm PwC, which outlined in its Budget Predictions 2024 that the National Treasury will be forced to raise taxes. 

Finance Minister Enoch Godongwana signalled in November that he would announce new tax measures to raise an additional R15 billion in this year’s budget. 

PwC said revenue collection for the current fiscal year has underperformed the minister’s estimates from last year’s budget. 

National Treasury forecast revenue of R1.78 trillion in last year’s budget, expecting growth of 6% from the previous financial year. 

This was based upon a sharp decline in corporate tax collections as commodity prices would fall throughout 2023, reducing mining companies’ profits. 

However, the decline was steeper than expected, and load-shedding was more severe. This resulted in the National Treasury revising its forecasted revenue down by R56 billion in the Medium-Term Budget Policy Statement (MTBPS). 

PwC expects revenue collections to be in line with the estimates in the MTBPS. 

In the MTBPS, the National Treasury estimated tax revenues for the coming financial year ending in 2025 to be R1.85 trillion, which is R54 billion less than forecasted in last year’s budget. 

This forecast includes an unspecified proposed increase in taxes amounting to R15 billion, the details of which will be announced in the Budget 2024. 

National Treasury has said tax increases would be a last resort. It hoped that revenue collections for the current fiscal year exceed expectations and, thus, the medium-term outlook improves. 

“However, we do not expect this to occur and that the government will proceed with the tax increases announced in the MTBPS 2023,” PwC said. 

To raise an additional R15 billion in tax revenue, the government must raise the corporate income tax rate by 1.4% to 28.4%, personal income tax by 0.5% across all bands, or increase VAT by 0.5% to 15.5%. 

Of these potential increases, PwC expects the National Treasury to raise VAT as there is no scope to raise corporate or personal income tax rates. 

Personal income tax has largely been exhausted, and corporate taxes have been a “volatile” and “unreliable” revenue source in recent years.

That’s partly due to mining companies, which have contributed to previous windfalls, facing a knock to their profits from lower commodity prices, power cuts and logistics snarl-ups.

The key question is whether the government will be brave enough to raise the VAT rate in an election year.