Tshwane, 24 February 2021– The South African Revenue Service (SARS) welcomes the upwardly revised revenue collection estimate announced by the Minister of Finance Tito Mboweni in his 2021 Budget Review presentation in Parliament today.
The COVID-19 pandemic has had a devastating impact on tax revenue collection due to the economic collapse far greater than that of the 2008 financial crisis. Key risks to economic growth and revenue remain the effect of the COVID-19 pandemic. This has precipitated job losses together with retrenchments, low consumption demand, strained company profitability following hard the lockdown and uncertain global demand.
The International Monetary Fund anticipates South Africa’s 2020 GDP outcome to suffer a dramatic contraction of 7.5%. Economic activity is expected to gain momentum in 2021; however, renewed waves and new variants of the virus pose concerns for the outlook amidst recent vaccine approvals. An expectation of weak growth momentum reflects the lingering effects of the pandemic and the likelihood that some mitigation measures will need to remain in place.
The revenue outcome highlights the severe economic impact of COVID-19 on a struggling economy. Expectations of tax base growth have deteriorated significantly since the 2020 Budget. Personal Income Tax (PIT) collection has been affected by rising unemployment and lower earnings. Corporate Income Tax (CIT) collections have been contracting since 2018/19, driven by amongst others, falling corporate profits. Specific excise duties are expected to fall by nearly 50% as a result of restrictions on trading activity and tax deferrals.
Since October 2020, there has been a stronger-than-expected rebound in Domestic Value-Added tax (VAT) and Customs duties flowing from the rise in consumption once lockdown restrictions were eased. Monthly domestic VAT collections since August were higher than the corresponding months in 2019, and Fuel levy collections have also improved.
The stronger commodity prices towards the end of 2020 coupled with the depreciation of the rand have boosted commodity sales as global demand rise, thus underpinning the increase in collection of tax revenues (CIT provisional) from the mining sector.
Despite a very challenging and constrained-operating environment, revenue collections have been trending well above the targets set out in the October 2020 Medium Term Budget Policy Statement (MTBPS). As a result of the recovery in consumption and wages between October and December 2020, and a boost to CIT receipts from the mining sector, 2020/21 revenue collections are expected to be R99.6 billion above the 2020 MTBPS estimate.
The Minister has thus increased the revenue estimate in anticipation of better than expected revenue collections to R1 212.2 billion and the 2021/22 estimate is set at R1 365.1 billion. The FY2020/21 tax-to-GDP ratio now stands at 24.6% and is forecast to only rebound to the pre-COVID 19 levels of 26.3% in the fiscal year 2027/28. The projected revenue collections of R1 212.2 billion reflects tax revenues for the financial year to March 2021 that are contracting faster at 10.6% than the economy which is projected to contract at 4.4% for the same period. The revenues have been impacted, amongst others by the tax relief measures, companies moving into assessed loss with the resultant effect of slowing down the recovery of corporate income taxes, employment and salary levels dropping with an adverse impact on employment taxes and finally overall consumption not rebounding quick enough to the pre-Covid19 levels thus affecting consumption taxes recovery. Furthermore, the sharper rate of declines in the revenues reflects the impact of the bans on the sale of alcohol and cigarettes and the foregone excise taxes. In the midst of the challenging year, SARS has heightened its compliance activities which has seen a R107bn impact which is embedded in the reported revenues as at 31 December 2020.
The uncertainty in the economy is likely to persist in 2021/2022 but we are committed to work assiduously, sparing no efforts, to reach the estimate. We will continue to provide certainty, clarity and predictability to taxpayers to enable them to meet their obligations. SARS is accelerating innovations towards its vision to make it seamless for standard income earners, and easier for all taxpayers to engage with the organisation. As we deepen the culture of voluntary compliance, we are also working to make it hard and costly for the non-compliant taxpayers.
We are on a journey to build “a smart modern SARS, with unquestionable integrity, trusted and admired”. Our focus is on a number of priorities amongst others is to expand the level data of taxpayers through third-party and other sources of information, as well as increase the use of data through machine learning and artificial intelligence. Emphasis is on broadening the tax base, improving tax compliance, an increased focus on wealth tax, and stepping up efforts to respond to the illicit and criminal economy.
Thank you to all South Africans, for your contributions and support.
Your tax matters!
For more information, contact [email protected].
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