Sars puts the rev­enue short­fall in con­text

The Citizen (KZN) - - BUSINESS -

This ar­ti­cle is a right of re­ply from the SA Rev­enue Ser­vice (Sars) in re­sponse to Bar­bara Cur­son’s ar­ti­cle “Sars: one step for­ward, two back”, pub­lished on Oc­to­ber 24. It has been short­ened.

Re­cent anal­y­sis and de­bate on rev­enue short­fall have gen­er­ated more heat than light, re­sult­ing in Sars largely be­ing in­cor­rectly blamed for the down­ward re­vi­sion of the rev­enue tar­get.

Fi­nance min­is­ter Malusi Gi­gaba has made it clear that slow eco­nomic growth is re­spon­si­ble for the R50.1 bil­lion short­fall.

Re­vi­sion pro­cesses

This in­volves Na­tional Trea­sury, [Sarb] and Sars as part of the Rev­enue Anal­y­sis Work­ing Group (RAWC). Based on a con­sen­sus-seek­ing process the RAWC rec­om­mends a rev­enue es­ti­mate to the fi­nance min­is­ter.

Rev­enue col­lec­tion growth cor­re­lates strongly with GDP growth, hence the down­ward re­vi­sion in rev­enue must be viewed against a sim­i­lar sharp con­trac­tion in the GDP growth out­look.

GDP pro­jec­tions re­treated from the 1.3% growth an­tic­i­pated at the Fe­bru­ary 2017 bud­get for the 2017/18 fi­nan­cial year to only 0.9%. Fis­cal bud­get process Rev­enue fore­cast­ing is done over a medium term or three­year hori­zon and for any par­tic­u­lar year the rev­enue is pinned down as the printed es­ti­mate in the Fe­bru­ary bud­get pre­ced­ing the start of the fi­nan­cial year.

[Nor­mally] both the rev­enue and GDP trends are fruited by Sars in­ter­nally and Sarb and Trea­sury ex­ter­nally. The per­for­mance of this and other macroe­co­nomic pa­ram­e­ters are an­a­lysed and, if need be, ad­just­ments are made at the MTBPS.

De­cem­ber rev­enue col­lec­tions are key in­di­ca­tors of the out­come of a fi­nan­cial year. In De­cem­ber, large com­pa­nies sig­nal their profit out­look when they make pro­vi­sional cor­po­rate in­come tax (CIT) pay­ments. Hence the fi­nance min­is­ter is af­forded the op­por­tu­nity to make a fi­nal ad­just­ment at the Fe­bru­ary bud­get for the year fore­cast. This is called the re­vised bud­get.

The per­for­mance of a tax ad­min­is­tra­tion does not min­imise the im­pact of the ef­fi­ciency of the tax ad­min­is­tra­tion as well as the com­pli­ance cli­mate or tax moral­ity of tax­pay­ers.

In 2016/17 Sars, in an ex­tremely low GDP growth en­vi­ron­ment of 0.7%, reg­is­tered tax-to-GDP ra­tio of 26%.The ra­tio also dis­played the steady sys­tem and im­prove­ment in ex­trac­tion rate fol­low­ing the rapid de­cline dur­ing the 2009/10 fi­nan­cial cri­sis.

The other mea­sure is tax buoy­ancy – the ra­tio be­tween growth in the rev­enue and growth in GDP. The long-term av­er­age for this ra­tio is 1. This ag­gre­gate buoy­ancy must be un­der­stood in re­la­tion to the buoy­ancy ex­hib­ited by the con­stituent taxes and their eco­nomic drivers. If the ag­gre­gate buoy­ancy is above 1 it means rev­enue is grow­ing faster than the econ­omy. This was the case un­til the start of 2016. It then sub­sided to just be­low 1.

The MTBPS an­nounce­ment for the R1214.7 bil­lion rev­enue out­look and 0.9% GDP out­look for 2017/18 will, if achieved, even­tu­ate in a tax-to-GDP ra­tio of 26.0% and buoy­ancy of 1.02.

Re­gard­ing the R51 bil­lion re­duc­tion, in the Fe­bru­ary 2017 bud­get the printed es­ti­mate was set at R1 265.5 bil­lion, which re­quired rev­enue to grow at 10.6% with a GDP growth out­look of 1.3%.

The bud­get also in­tro­duces tax pol­icy changes amount­ing to R28 bil­lion to sup­port this growth. The nor­mal in­creases for sin taxes also in­creased. Strip­ping out tax pol­icy change the base-to-base in­crease in rev­enue ex­pec­ta­tion would mod­er­ate to 8.6% for fi­nan­cial year 2017/18.

Six months into the fi­nan­cial year it be­comes clear the printed es­ti­mate would be in peril. The tech­ni­cal re­ces­sion af­fected all taxes, hence the pol­icy mat­ters did not have the de­sired in­put.

De­spite the 2.5% quar­ter­growth in GDP post the first two-quar­ter re­ces­sion, a 4% growth in GDP will be re­quired for the re­main­der of the year to achieve the full year growth of 1.3% an­tic­i­pated [in] Fe­bru­ary.

The ex­cep­tion­ally poor con­sumer and busi­ness con­fi­dence has a domino ef­fect on the tax en­vi­ron­ment. Job losses and con­strained bonuses drag down per­sonal in­come tax. This un­cer­tainty is caus­ing con­sump­tion anx­i­ety and house­hold spend­ing, both of which drag down con­sump­tion-based taxes.

The over­all lack of im­pe­tus in the econ­omy and reg­u­la­tory and politi­cal un­cer­tainty cre­ates a dif­fi­cult in­vestor cli­mate, with pri­vate sec­tor in­vest­ments in re­treat. Lack of in­vest­ment grad­u­ally trans­lates into lower prof­its and hence CIT is strug­gling. Dr Ran­dall Carolis­sen is group ex­ec­u­tive: Re­search at Sars.

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