Tax arrears heading to exceed R10bn
Tax revenue for the current fiscal year could fall short of the medium-term budget policy statement (MTBPS) forecast by at least R10 billion.
This was after corporate and personal income tax collection slowed in the last few months of last year.
Tax revenue growth has not been as buoyant as expected and, as economic growth continued to disappoint, Minister of Finance Tito Mboweni was under pressure to rein in spending to keep SA’s growing debt burden and deteriorating fiscal numbers in check.
His budget speech is due on Wednesday.
In the MTBPS, Mboweni revised the tax revenue projection for the 2018-19 year down by R27 billion, due to a VAT refund backlog, underestimation of refunds and slower corporate income tax collections.
Since October, revenue performance has deteriorated significantly, said PwC’s Kyle Mandy.
Given the deterioration and downside risks, PwC expected revenue to fall short of the revised MTBPS number by at least another R10 billion – R37 billion less than the 2018 budget forecast for 2018-19.
In February last year, Treasury expected revenue to grow 10.6% in 2018-19, but by December growth had only reached 7.6%.
Amid a slowdown in economic growth, corporate profitability suffered and corporate income tax revenues (expected to grow 6.5%) saw a 1.1% contraction in the fiscal year through December. Personal income tax collection also disappointed.
“The downside risks for the remainder of the year are significant as well, so the shortfall could abe worse than that to about R15 billion by the end of the year,” Mandy said.
But despite this analysts generally did not expect significant tax hikes in this year’s budget.
Treasury has arguably run out of room to increase tax collection through further rate hikes.
However, there was the possibility of small tax increases in some relatively minor tax instruments, Mandy said. One exception was personal income tax, where the brackets for higher income earners might not be adjusted to grant relief for inflationary salary increases.
PwC expected the budget deficit to widen from a projected 4% of GDP in 2018/19 to 4.3%.