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The new SARS data shows that South Africa faces an uphill battle when it comes to raising revenue, even before the impact of the coronavirus pandemic is taken into account.
In a parliamentary presentation on Tuesday (October 6), SARS Commissioner Edward Kieswetter said that several factors have started to manifest themselves in considerably weaker economic activities during the 2019/20 financial year, especially in sectors such as manufacturing and financial services.
The 2019/20 financial year ended on March 31, 2020, before the pandemic and the Covid-19 lockdown had fully taken root in the economy.
Factors identified by the head of SARS include:
- Bad economic conditions;
- High public debt;
- Underperforming state companies;
- Unreliable electricity supply; Y
- Lower business confidence.
For the fourth quarter of 2019, there was a contraction of real GDP of 0.4%, 2.9% and 1%, respectively, in the primary, secondary and tertiary sectors. This worsened to -11.8%, -7.5% and 1.3% respectively in the first quarter of 2020.
Kieswetter said SARS has also seen an increase in downsizing, lower pay deals, reduced bonus payments and slower growth in consumer spending over the year.
Of particular concern is that the SARS tax guidelines for staff cuts in 2019/20 reflected a total of 287,000 versus 239,000 the previous year.
This indicates a tax base erosion, especially for PAYE, since the 287,000 represent a series of PAYE contributors who will be Probably not contributing to the 2020/21 tax base. unless it is reabsorbed into employment, SARS said.
Pay-As-You-Earn Tax (PAYE) refers to the tax that an employer must deduct from an employee’s compensation paid or payable.
This is unlikely to improve as data for the first quarter of 2020 showed an increase in the unemployment rate of one percentage point to 30.1%, while second quarter data from Stats SA showed that approximately 2, 2 million South Africans lost their jobs during the coronavirus pandemic, despite Stats SA showing an ‘improvement’ in the unemployment rate.
The unemployment figures, as well as other coronaviruses and economic shocks, mean that SARS now projects a revenue shortfall of R304 billion for 2020/2021.
Who pays South African taxes?
The SARS data show that the Personal Income Tax (PIT), the Business Income Tax (CIT) and the Value Added Tax (VAT) continue to be the largest sources of tax revenue, comprising approximately 80% of total tax revenue collection.
PIT’s contribution has increased to 39% in fiscal 2019/20 from 38.3% in the prior year, primarily due to the reduction in tax relief.
There was a growth in CIT collection due to improved company profits, especially in the mining and quarrying sector.
However, SARS said this was offset by contraction in CIT provisional tax payments mainly from the manufacturing and finance sectors. These sectors were negatively affected by continued unreliable electricity supplies, weak business and consumer confidence, as well as uncertainty about global growth prospects.
Domestic VAT collection fell short of the revised estimate by R100 million, as high unemployment, slow growth in household income and high indebtedness continued to dampen consumer spending.
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