Shortfall revision largest since recession

The tax revenue shortfall was higher than the R40bn-R50bn economists had expected, making it the largest downward revision since the 2009 recession, the Treasury said.

Gross tax revenue in this fiscal year is expected to be R50.8bn lower than that which the Treasury projected in February, when the budget was tabled by former finance minister Pravin Gordhan.

The shortfall is projected to widen to R69.3bn in 2018-19 and to R89.4bn in the third financial year.

Despite this, Finance Minister Malusi Gigaba said on Wednesday: “Given that per capita income is falling, the economic impact of further expenditure cuts or tax hikes could be counterproductive.”

The economy is unlikely to muster stronger growth and is expected to reach a growth rate of 1.9% only in 2019-20, according to the Treasury’s latest growth forecast.

The revenue shortfall in 2017 is largely due to lower customs duties. This follows a sharp contraction in imports as a result of weak investment and lower household consumption.

Revenue from personal income tax, value-added tax and corporate income tax was also below projections.

There were no new tax measures announced by Gigaba in his medium-term budget policy statement. The issue has been deferred until the budget in February 2018.

The Treasury said the sugar tax, to be implemented from April 2018, was under consideration in Parliament. A revised Carbon Tax Bill would be published soon.

But the Treasury may introduce tax hikes amounting to 0.8% of GDP — or R40bn — to stabilise gross debt to below 60% of GDP over the next decade if it does not achieve this through spending cuts.

South African Revenue Service (SARS) commissioner Tom Moyane said at a media briefing in Parliament on Wednesday that critics of SARS’s performance in revenue collection needed to “take cognisance of the sluggish economic conditions our country is going through … that is juxtaposed against the ability of SARS to collect as much revenue as possible”.

The Treasury said that tax revenue buoyancy — the ratio of the growth of a revenue stream to the growth of its underlying tax base — “appeared to have run its course”.

It revised the medium-term buoyancy of personal income tax down to 1.15, from 2016’s estimate of 1.28, adding that buoyancy of corporate income tax was “highly uncertain”.

Revenue growth last outpaced GDP between 2011 and 2015, partially due to tax policy and economic trends.