The Minister of Finance, Tito Mboweni, presented his Medium Term
Budget Policy Statement (“MTBS”)
today, 28 October 2020. As expected, the speech focused
mainly on the economic aspects of the medium-term fiscal strategy.
The Minister also tabled the various tax amendment bills for 2020
which are now finalised and are likely to be promulgated towards
the end of the year.
While significant concerns about the level of borrowings and the associated interest cost remain, in respect of taxes, the gross tax revenue has been revised downwards for a second time since the June 2020 special adjustments budget. Gross tax revenue is expected to be 17.9%, ZAR243.1-billion less than collections in 2019/20, which were ZAR1355.7-billion.
In addition, the tax-to-GDP ratio will decline substantially from current levels of 26.3% to 22.9%. Significant economic growth is required to return this ratio to the levels achieved in priors years. This reduction in gross tax revenue is across all taxes with the biggest reduction in value-added tax (“VAT”) as a result of the lower level of economic activity. Individuals, where the tax take has also decreased, continue to be the largest contributor to tax by contributing nearly 41% of the gross tax revenue in comparison to 39% in 2019/20.
While tax revenues were particularly low during the lockdown (also as a result of excise duties not being paid), collections continue to be generally low in comparison to last year. This has been caused by higher unemployment, lower consumption and long periods of the alcohol and liquor ban.
While no tax policy statements were made, as this is usually reserved for the February Budget, there was an emphasis on improved tax collection and administration. There was no specific mention of the additional funding requested by the Commissioner of the South African Revenue Service (“SARS”), but indications are that the capacity building is continuing. The announcements made in the February 2020 Budget relating to the tax gap study; continued focus on international taxes and specifically, aggressive tax planning using transfer pricing; a focus on fraud and tax crimes and the use of third party data to identify non-compliant taxpayers; were again included in the detailed 2020 MTBS.
There is an expectation that tax revenues will continue to rise and there will also be an improvement in revenue collection, with tax increases of ZAR5-billion planned for 2022, ZAR10-billion in 2023 and ZAR15-billion in 2024. There were no indications of what these increases could entail and whether more taxes would be introduced or the rates of existing taxes increased.
The projections in the MTBS did not include additional tax revenue from more efficient collection by SARS. There is however, no doubt that there is an expectation of higher collections from more effective collection to increase the gross tax revenue. There are already signs of this with the focused approach that SARS is taking in collecting outstanding taxes and the reliance on penalties (especially understatement penalties) to generate additional income.
Originally published by ENSafrica, October 2020
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.