SA’s hard road to recovery
COVID-19: UNDERCOLLECTION BLAMED ON LACK OF ECONOMIC ACTIVITY
Ban on alcohol, tobacco also didn’t do the country any favours.
The South African economy will require funding of an estimated R3.4 trillion in the next three years, excluding off-balance-sheet infrastructure projects, says Martin Kingston, executive chair of Business for SA.
The undercollection of tax revenue because of the sharp contraction of the economy in response to the stringent Covid-19 lockdown regulations may well be worse than the R300 billion touted in June. Tax collections were down 20% in August compared to the same time last year.
SA Revenue Service (Sars) Commissioner Edward Kieswetter said in his opening address at the virtual Tax Indaba on Monday that Sars collected R460 billion compared to last year’s R519 billion in the same time.
He said the undercollection is not only linked to the lack of economic activity, but also to the current level of tax compliance.
“I do understand the frustration many South Africans have when they witness inefficiency, waste and corruption in the country.
“I understand that many feel morally justified to fiddle with their taxes, but when we do, we hurt the vulnerable and poorest in society.”
Kieswetter referred to the corruption investigations into irregularities regarding the procurement of personal protective equipment (PPE), where 63% of the companies who were awarded tenders were found to be “tax uncompliant”, and
22 of the companies were linked to “politically exposed individuals”.
The ban on the sale of tobacco and alcohol during the lockdown also didn’t do the economy any favours.
“The price we are paying as a society, in addition to the lost tax revenue, is the fact that many of these [illegal] operators have embedded themselves in the supply chain,” said Kieswetter.
“It will take us years to reverse the impact these illegal and criminal operators are having on the economy.”
There is, however, some good news. Chris Loewald, Head of the South African Reserve Bank’s Economic Research Department, said there are things happening in the global economy that are supportive of getting SA economy back on track. “The terms of trade have been strong, pricing levels in the mining sector have been very strong, and that will continue as the Chinese economy begins to rev up.”
He added that although a lot has to be done to enable the economy to grow faster, the macro recovery trajectory is actually “a pretty good one”.
Infrastructure is seen as a critical part of the country’s recovery post Covid-19.
Kingston noted that the 50 projects and 12 special projects worth R360 billion announced earlier by government will have to be “ruthlessly prioritised” to ensure that they offer appropriate returns.
Webber Wentzel partner Alexandra Felekis has been intimately involved in the programme, and says the country’s current Power Producer Procurement Programme (PPP) framework is highly regulated.
“This has resulted in a very complex, cumbersome and time-consuming process where it can take five years to get one PPP going,” she said.
Macro recovery trajectory is a pretty good one