The Medium-Term Budget Policy Statement revealed an improved budget deficit for the first half of the 2022/23 financial year as a result of better-than-expected personal tax collections, lower levels of revenue refunds and higher commodity prices.
THE MEDIUM-Term Budget Policy Statement (MTBPS) revealed an improved budget deficit for the first half of the 2022/23 financial year as a result of better-than-expected personal tax collections, lower levels of revenue refunds and higher commodity prices.
According to the National Treasury’s In-Year Revenue Outlook, tax collections were 9% higher than the same period last year, and the gross tax revenue estimate based on corporate tax recovery improves the near-term revenue outlook.
Tax is estimated to go up by R83.5 billion, with corporate tax income making up almost R62.8bn of that amount, with customs tax coming in at R11.5bn, despite imports statistics showing a decline of 17% during the same period. Personal income taxes came in as the third biggest contributor at R8.2bn.
Income from VAT was 4.8% lower than the year before, but the South African Revenue Service (Sars) said VAT refunds were expected to exceed pre-Covid levels, while import and domestic VAT collections were also expected to improve.
Net VAT collections had been revised down compared to the 2022 Budget estimates, as higher refunds more than offset improved domestic VAT receipts.
Refunds averaged R25.1bn per month for the first half of the current financial year, driven by increased capital expenditure in the finance sector and exports of manufactured goods.
“Lower disposable incomes for households would also weigh on domestic collections,” the MTBPS said.
However, Treasury officials stated that the growth in major tax bases performed better than previously anticipated, and with continuous efficiency improvements at Sars, would support their medium-term revenue prospects.
“The windfall tax benefits from high commodity prices are projected to fall away over the next two years, however, revenue collections are still expected to exceed pre-Covid estimates.”
Meanwhile, the Treasury said it expected tax to GDP to reach 25.4% by 2025/26. It is currently about 24.9%.
Tax to GDP explained
For public finance comparison purposes, the Treasury defines it as a country’s tax burden or tax-to-GDP ratio, which is calculated by taking the total tax payments for a particular year as a fraction or percentage of the GDP of the same year, and depends on sustained economic growth and greater efficiency in revenue collection.
So the higher the ratio, the higher the proportion of money that goes to government coffers, and according to a public statement issued by The South African Institute of Chartered Accountants (Saica), it is evident that South Africa’s tax revenues have been rising despite sluggish economic growth.
According to the World Bank, a tax-to-GDP ratio of 15% is the benchmark of long-term economic growth and wealth creation, but Saica said a high tax-to-GDP ratio was not a problem if taxpayers are receiving good value for their money.
The professional body has recommended that South Africa lower its tax-to- GDP ratio and introduce a tax ceiling, but the National Treasury remains averse to this notion, despite the Katz Commission proposing the same thing years ago, but at a set 25%, which is a level projected to be passed in the medium term.
The advocacy croup Outa (Organisation Undoing Tax Abuse) had also previously released a research paper which concluded that 18.6% was an appropriate level, which was considered in 1996, but the organisation stated that its recommendation remains unvisited.
That being said, according to Keith Engel, the CEO of the South African Institute of Taxation (Sait) and former head of tax policy at the Treasury, South Africa’s tax-to-GDP ratio is closer to 35% as the pool of active taxpayers in the country is only 50 million out of a population of 60 million.
“That ‘average’ GDP-to-tax ratio is very misleading,” he said.
Furthermore, Engel said that the opportunity cost of service delivery added to the administration prices already charged by Eskom, Transnet and Sanral, and not taking over debt that was guaranteed anyway, is a book exercise, and nothing but another tax on the compliant and the contributing, thinking that we won’t notice.
– BUSINESS REPORT
