Weak tax buoyancy and a lacklustre economy are expected to hurt South Africa’s tax collections. Added to these issues, the changes in management and administration at SARS, following years of erosion in institutional capacity are unlikely to yield substantial revenue gains in 2020/21, Nedbank economists said in a research note.
“Some revenue‐boosting measures are expected to be announced after the Finance Minister hinted as much in the Medium Term Budget Policy Statement (MTBPS),” Nedbank said.
“These measures, coupled with firmer, albeit very modest, GDP growth, are forecast to result in a slight improvement in revenue growth over 2020/21 and 2021/22.”
Below Nedbank outlined its key tax expectations for the 2020 Budget:
- National Treasury is forecast to rely heavily on well above inflation increases in the general fuel levies and excise duties on luxury goods, alcoholic beverages and tobacco products to raise tax revenues;
- Limited personal income tax relief, as has been the case in recent years, is expected. Adjustments for bracket creep are again expected to be below the inflation rate, with the usual adjustments to personal income tax thresholds, rebates and brackets likely to be below 4%;
- Company tax relief is unlikely. The company tax rate and the dividend withholding tax rate are forecast to remain unchanged at 28% and 20% respectively;
- Some analysts are expecting a hike in the Value Added Tax (VAT) rate to 16% from 15%, but this appears unlikely in the current difficult in the economic environment. It is also worth noting that the previous hike in VAT failed to improve government finances as economic growth slowed by much more, effectively neutralising the impact of the rate hike. After years of weak economic growth and rising unemployment, another hike in VAT would probably yield even less in revenue than the previous move.
“The scope to reflect a significant improvement in the country’s fiscal metrics is very limited, but finance minister Mboweni could help to restore confidence, both locally and globally, by undertaking long-overdue structural reforms,” said Nedbank.
“Given that these have been promised repeatedly in the past, a firm commitment to specific timelines may help overcome the credibility gap. Government will also have to, as a matter of urgency, implement the measures around increasing electricity generation capacity outside of Eskom mentioned in the State of the Nation Address.”