Treasury being too optimistic – experts

Unlike public sector entities, most private sector companies have been forced to reduce their salary bills in order to keep the doors open during the lockdown.

An example prepared for Moneyweb shows someone with taxable income of R300 000 can expect to pay 50% less tax after suffering a 30% cut in salary, on the assumption that the taxpayer is entitled to the normal tax rebate but has no other deductions.

Conversely, a person with taxable income of R1 million who is subjected to a 30% pay cut will find their tax liability reduced by only 40%, says independent tax practitioner Pieter Botha.

“On a net income basis the taxpayer earning R1 million and the person earning R300 000 will both find their income reducing by 26%,” he said.

While this indicates that tax-bracket scales have a way of balancing things out somewhat, one can safely assume that taxpayers in lower income brackets will be more severely affected by income reductions than those in higher income brackets.

Finance Minister Tito Mboweni adjusted the expected revenue collection figures during his June supplementary budget. An undercollection of R300 billion in revenue is expected for the current tax year (2020-21).

David Warneke, national tax committee chair at the South African Institute of Chartered Accountants, said in a submission on the 2020 supplementary budget that National Treasury’s track record in terms of tax revenue estimates has worsened over the past decade and it remained “overly optimistic” in its tax revenue estimates.

Treasury expects the tax-togross domestic product (GDP) ratio to fall by a similar margin to that during the global financial crisis and that there will be a steeper recovery thereafter.

“However, this fails to take into account that there was almost a total shutdown of the economy ... which was not the case with the global financial crisis.

“If these [revenue and GDP] estimates are inaccurate, there is a knock-on effect on the budgeted expenditure levels in each year.”

SA no longer has the luxury of basing revenue (and expenditure) forecasts on best-case scenarios.

The South African Revenue Service has announced a fundamentally different approach to the annual filing season, which in the past kicked off on 1 July. It has been pushed out to 1 September.

A significant number of taxpayers will be auto-assessed using data collected from employers, financial institutions, medical schemes, retirement funds and other third-party data providers.

Online tax return service Tax Tim advises taxpayers not to accept the auto-assessment.

“Accepting it could result in you paying more tax than necessary,” it says. – Moneyweb