Tax collection to fall short by R53bn in 2019

Tax collections by the South African Revenue Service (Sars) in the 2019/2020 financial year are expected to fall short by R53 billion.

This is the sixth year in a row that Sars has been unable to meet National Treasury’s estimated revenue collection due to stagnant economic growth and administrative issues. There has also again been downward revisions to the expected growth of major tax bases.

The largest revision was made for personal income tax which is expected to fall short by R25.3 billion. Value Added Tax (VAT) is expected to fall R12.1 billion with company tax expected to be down by R10.6 billion.

“As US President George Bush would have said, ‘that’s a big number’,” said Finance Minister Tito Mboweni ahead of his presentation of the medium-term budget policy statement (MTBPS).

In February the National Treasury estimated that revenue would be R1.42 trillion, this has been revised down to R1.37 trillion, 4% less than expected.

Sars commissioner Edward Kieswetter said revenue collection figures were a function of the performance of the economy which National Treasury expects to grow by 0.5% in 2019. Along with the institution’s faltering ability to collect taxes which he admitted was “sub-optimal”.

Findings by the Nugent Commission of Inquiry into Sars highlighted significant governance failures, the dismantling of critical organisational arrangements and the loss of experienced staff, which contributed to poor revenue collection in recent years.

Kieswetter said 2% of the downward trend in the collection of personal income taxes reflected job losses, pension fund reforms, lower wage settlements and smaller bonuses.

A reduction in profitability in a difficult trading environment was also noted, resulting in lower-than-expected corporate income tax collections and weak household consumption which had a moderating effect on domestic VAT collection. Kieswetter also noted that the perceived lack of consequence to criminal behaviour in South Africa had led to a significant proliferation of VAT payment fraud.

Over the next two financial years, the state projects that it will collect just under R200 billion less revenue than what was previously forecasted in February. That is R84 billion in 2020/21 and R114.7 billion in 2021/22.