Pretoria, 01 April 2012 – The collection of tax revenue is one of the most informed indicators of how successful a country is in stimulating growth, development and investment in its economy; in encouraging its citizens to comply with its laws; and in maintaining an appropriate balance between its fiscal expenditure needs and available income streams.
The ability of a government to intervene during times of economic crises, market contagion or recessions, depends on the strength and depth of its fiscal position – the tax revenues it has, it can or it is expected to generate through revenue collection.
The 2012 February Budget set SARS a revenue target of R738.7 billion:
- Against this target, SARS collected R742.7 billion which is R4 billion (0.5%) more than the Revised revenue Estimate in the 2012 Budget.
- The tax-to-GDP-ratio remained relatively unchanged year-on-year, from 24.5% in 2010/11 to 24.8% in 2011/12 and well below the pre-crisis high of 27.6% in 2007/08.
- Government’s preliminary spending outcome of R968.5 billion is R4 billion lower than anticipated in the 2012 Budget.
- The new budget deficit figure is 4.5% of GDP. The deficit figure is lower than the 2012 Budget Estimate of 4.8% of GDP. The preliminary revenue performance has firmed up the forecast 2012 Budget projections and therefore removes the requirement for additional borrowing.
I want to thank all registered taxpayers who paid their fair share tax during this year.
The vast majority of South Africans pay tax and make contributions to the fiscus by paying VAT, excise duties and the fuel levy on the goods and services they consume.
As far as income tax is concerned, for the 2011/12 fiscal year some 13.7 million individuals, 2 million companies and 652 000 VAT vendors contributed to this remarkable revenue achievement and
1. The main revenue highlights are—
- Total revenue of R742.7 billion represents an increase of R68.5 billion (10.2%) over the previous financial year
- The three main revenue contributors for 2011/12were—
- Personal Income Tax(PIT): total collections were R251.6 billion which grew by R23.5 billion (10.3%) year-on-year and were R1.0 billion (0.4%) above the Revised Estimate in the 2012 Budget
- Corporate Income Tax (CIT): total collections were R153.7 billion which grew byR19.1 billion (14.2%)year-on-year and were in line with the Revised Estimate in the 2012 Budget
- Value Added Tax (VAT): total VAT collections were R190.5 billion and showed a relatively muted growth of R6.9 billion (3.8%) year-on-year. This performance was R0.4 billion (-0.2%) below the Revised Estimate in the 2012 Budget
2. Revenue and Sector Analysis
While most of the other taxes have recovered Corporate Income Tax (CIT) collections atR153.7 billion – although showing growth of 14.2% year-on-year – remains below the peak of R165.5billion collected in 2008/09. This slow recovery of CIT in the main accounted for the current the tax-to-GDP ratio which remained flat.
The past three years saw contraction in the construction sector following the 2010 Soccer World Cup as well as declines in the manufacturing sector where production volumes are recovering moderately. The mining, finance as well as wholesale and retail sectors, showed robust growth on the back of a modest economic recovery. During 2011 the South African economy grew by 3.1% and continued to demonstrate resilience in an uncertain global environment.
Although the global crisis is no closer to resolution, buoyant growth in tax revenue in South Africa was driven by the strong performances of import taxes, recovery of corporate profits and resilient consumption.
Strong revenue growth benefited from strong contributions from the financial sector (37%) which is R18 billion or 10.5% higher than the previous financial year. CIT collections also benefitted from stronger imports in the automotive sector and increased investments in capital intensive industries such as energy, manufacturing and agricultural. This is an important indicator of investor confidence in the future of the domestic economy and provides a good platform for future growth.
3. Revenue Performance
Total tax revenue growth year-on-year of 10.2% was in the main attributable to:
- Personal Income Tax (PIT) –PIT collections grew by R23.5 billion (10.3%), supported by high provisional payments and higher than expected wage settlements and is above with the Revised Estimate in the 2012 Budget. PIT collections for 2011/12 contributed R251.6 billion or 34% to total revenue.
- Corporate Income Tax (CIT) – collections grew by R19.1billion (14.1%)year-on-year. Significant increases in provisional payments were received from mining (coal) and financial services. CIT collections were in line with the Revised Estimate in the 2012 Budget. CIT collections for 2011/12 contributed R153.7 billion or 21% to total revenue.
- VAT on Imports– grew by R19.3billion (23.5%) and was driven by the importation of machinery and vehicles. This is slightly below the Revised Estimate in the 2012 Budget. Some of the growth in VAT imports is temporary and will be reversed when companies eventually claim back VAT refunds. VAT collections for 2011/12 contributed R101.5 billion or 13.7% to total revenue.
- Domestic VAT – Year-on-year growth of R14.9billion (7.3%) was due to administered inflation in energy and the coal and petroleum industries, growing at 80% and 43% respectively. The growth in the financial services sector, being the largest contributor to Domestic VAT, remained at modest levels of 6%. Domestic VAT collections were R0.4 billion (0.2%)below the Revised Estimate in the 2012 Budget.
- The higher VAT surplus was partially offset by higher VAT refunds which, mainly as a result of increased economic activity and the importation of capital equipment, grew by R27.3 billion (26.4%).This is slightly above the Revised Estimate in the 2012 Budget.
- Customs duties– Year-on-year growth of R7.7billion (28.9%) is due to importation of vehicles, clothing and footwear. The surplus against the Revised Estimate in the 2012 Budget amounts to R2.1billon (6.5%).
4. Tax Refunds
For 2012/12 refunds across all tax types from SARS to taxpayers amounted to R164.4 billion which is R31.5 billion (23.7%) higher than the previous financial year. This is direct contribution from the tax system to the domestic economy.
- PIT refunds totalled R17.6 billion (R2.2 billion or 13.9% higher than the previous financial year);
- CIT refunds amounted to R15.9 billion (R2 billion or 14.5% higher than the previous financial year) and
- VAT refunds totalled R131 billion (R27.3 billion or 26.4% higher than the previous financial year).
5. Sustaining and Growing Tax Compliance
The preliminary outcome of revenue collection for 2011/12 represents another excellent contribution by SARS to ensure our fiscal expenditure programmes are sustainable. The strong revenue performance was also borne from a culture of growing tax compliance.
South Africa has done well in growing the tax base and improving compliance. However, the South African economy finds itself in transition where there is a constant migration of individuals from the informal into the formal economy. SARS’s compliance strategies have to take this reality into account.
Over the last 18 years SARS has also made tremendous progress in raising the levels of tax compliance in our country and in broadening the tax base. The number of registered individual taxpayers has increased from 1.7 million in 1994 to more than 6 million 2009/10. This number has doubled following policy changes in 2011 to register all individuals in the country who are formally employed (13.7 million individuals by 31 March 2012) despite changes to the thresholds.
Revenue growth over this period increased from R113.8 billion in 1994/5 to more than R742.7 billion 2011/12. This represents revenue growth of almost 550% at an average increase of 11.6% per year.
Over the same period the number of companies registered for income tax increased from 422 000 in 1994 to more than 2 million in 2011/12; registered VAT vendors increased from 397 000 in 1994 to 652 000 in spite of changes to the thresholds, and the number of registered employers grew from 177 000 in 1994 to 385 000 to date.
Millions of South Africans who are not in formal employment or not registered for income tax contribute to the fiscus by paying VAT, excise duties and the fuel levy.
6. The SARS Compliance Programme
While the overall compliance climate has shown constant improvement, maintaining and growing positive compliance trends require constant, systematic attention. SARS will from this year increase its efforts to create a climate that is increasingly conducive to full compliance by all taxpayers.
Today, we launch the SARS Compliance Programme into the public domain which is a high-level overview of SARS’s plans for the next five years to further grow the levels of compliance with tax and customs legislation.
Research by SARS has identified particular areas in our economy and in the tax system that poses significantly higher risks of non-compliance. Over the medium term, SARS will concentrate its attention on-
6.1 Construction Industry: Research by SARS has shown that this industry has significantly lower levels of compliance than other sectors in the economy. The industry receives a significant portion of public infrastructure spending from the fiscus, which makes compliance in this industry even more critical.
6.2 Abuse of Trusts by Wealthy South Africans: can expect substantially more compliance checks and integrated audits – but also more opportunities for upfront engagement and pre-filing agreements. Our research shows that a potentially significant number of wealthy individuals are not registered taxpayers.
6.3 Transfer pricing by large Business: will come under the spotlight with a comprehensive international review of the practice, up-skilling of our staff and greater cooperation with other revenue administrations. Large corporates are generally compliant, although there is room for improvement. Preliminary research have indicated that 26% of CIT returns are outstanding, VAT audits have shown up to 60% reporting inaccuracy, 38% of CIT payments are either late or outstanding, and audits on transfer pricing have yielded around R2.3billion.
6.4 Tax practitioners and trade intermediaries: Regulation of this industry will be pursued to ensure that tax practitioners are all persons of good standing and members of a professional body. SARS will develop a rigorous risk profiling system to identify high risk practitioners.
Tax practitioners represent around 3 million taxpayers. The majority of practitioners are compliant, and play a positive role in shaping the compliance climate and culture. But there are also some of these practitioners that havea poor personal compliance history. Practitioners in this group have 18,401 personal tax returns outstanding – many of them long outstanding – and have accumulated debt of R260 million.
Presentation by the Minister on the Compliance Programme 2012/13 – 2016/17.
7. Revenue Outlook
Economic growth for South Africa is forecast to slow from 3.1% in 2011 to 2.7% in 2012, increasing to 4.2% by 2014. The growth is expected to be fuelled by household consumption expenditure, higher investments by business, exports demand by emerging trade partners and higher public-sector infrastructure spending.
Tax revenues have improved since the decline in 2009/10 and are expected to continue to recover in line with growth in economic activity. Revenue is expected to grow mainly from higher PAYE, Provisional CIT and VAT, which have performed particularly strongly in 2011/12. Therefore collections are expected to rise by R83.7bn (11.3%) to R826.4bn.
The 2011/12 preliminary outcome of revenue collection gives us confidence that our outlook for the medium term is realistic and achievable.
I want to assure all South African that every effort will be made by government to monitor the use of your hard-earned tax contributions and to ensure that it is used wisely. We will make every effort to fight corruption and the abuse of public funds.