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
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