Paye, corporate tax, VAT on hold

MEDIUM-TERM BUDGET: UNLESS EMERGENCY ARISES

ational Treasury does not expect that personal or corporate tax rates or VAT will be increased over the medium term, unless the economic environment deteriorates substantially.

“At this stage, revenue projections assume no changes to tax rates, but provides for annual adjustments to personal income tax brackets, levies and excise duties in line with inflation,” it said in its Medium-Term Budget Policy Statement (MTBPS) yesterday.

Tax commentators have for some time warned that further tax hikes may not necessarily result in additional tax revenues. In its MTBPS, National Treasury acknowledged as much, citing little room for large fiscal adjustments.

Finance Minister Tito Mboweni stressed the MTBPS came at a time of slow economic growth (Treasury revised its forecast for 2018 from 1.5% to 0.7%), lower revenue outcomes and that the budget environment was “very tight”.

Revenue collection was relatively buoyant in the first half of 2018/19, growing by 10,7% yearon-year, but the recession has started to weigh on collections.

“Weaker economic growth, alongside a once-off payment of overdue VAT refunds, will result in an in-year revenue shortfall now estimated at R27.4 billion, relative to the 2018 Budget estimate,” Treasury said.

A backlog of VAT refunds at the South African Revenue Service (Sars) and an underestimation of refunds due had led to an excessively optimistic view of revenue growth. The VAT refund estimate has been revised upwards by R9 billion, and about R11 billion would be paid out to clear the backlog in the VAT credit book. The remaining R7.4 billion of the shortfall is the result of slower corporate income tax collections.

The tax ombudsman’s investigation in 2017 found that Sars unduly delayed payment in some instances. “In future, Sars will ensure all refunds from correctly completed VAT returns are paid within 21 working days,” Treasury said.