Good news about tax in South Africa – but with caution

Nwabisa Ruka, director of tax and legal at Deloitte Africa, said there is no indication of increasing taxes in the near future.

Ruka was commenting on finance minister Enoch Godongwana’s medium-term budget policy statement (MTBPS).

Godongwana highlighted that since the 2022 Budget, revenue collection had exceeded projections.

The gross tax revenue estimate for 2022/23 has been revised up by R83.5 billion to R1.68 trillion.

The higher estimate is largely due to improvements in corporate income tax collections, with strong receipts from the finance and manufacturing sectors.

The better-than-expected revenue collection estimates, including over the medium term, have allowed the government to narrow the deficit and mitigate lingering and new risks.

SARS commissioner Edward Kieswetter said that while the tax revenue looks higher, it still has to be collected and is not in the bank yet.

He said the two industries which helped to increase tax revenue are finance and manufacturing. Although mining helped to bolster coffers last year, there is a declining contribution this year.

Even with lower taxes from the mining sector, Kieswetter expects the gross operating surplus to continue for the rest of the year. “If that pans out, we will see a 22% upward collection,” he said.

The SARS commissioner said the increased collection is not luck. R92 billion in increased tax revenue is directly linked to work from SARS to increase tax compliance.

Good news for taxpayers

Deloitte Africa’s Ruka said there was a positive message in the medium-term budget speech on how taxes can be used to stimulate economic growth.

“There have been more than expected tax collections because of a good performance in the financial and mining sector and increased income tax collection,” she said.

“I do not see any indication around an increase in the tax rate in the short term. It is positive news for citizens given the economic situation.”

She added that the South African Revenue Service (SARS) is focussing on tax compliance to increase revenue collection rather than tax increases.

Caution around the government’s debt

While the short-term outlook for the state’s finances looks good, the picture looks less rosy longer term.

For nearly 15 years, the South African government has been tabling higher deficits.

As a result, government debt is projected to be more than R4.7 trillion in the current financial year, compared to R627 billion in 2008/09.

This debt is incurring debt-service costs that will average R355.2 billion per year over the medium-term expenditure framework.

Continued bailouts for state-owned enterprises, a rapidly growing public sector wage bill, and increased grant payments are putting further pressure on the state’s finances.

The country is also suffering from low economic growth and higher unemployment, which do not bode well for the state.

Peter Worthington, a senior economist at Absa, added state spending remains high, and that is where the problems are going to arise.

He said it is unlikely that the government will stop the social relief and distress grant ahead of an election next year as suggested.

These factors are raising concerns that the government may consider higher taxes in future to cover the growing debt burden.