R22 billion tax blow for South Africa – ‘difficult trade-offs’ coming

Finance minister Enoch Godongwana says that the South African Revenue Services (SARS) is expected to miss the February revenue target by R22.3 billion – and without faster economic growth, the country will have to make some difficult trade offs.

Presenting the medium-term budget policy statement (MTBPS) on Wednesday (30 October), the minister outlined that compared to the 2024 Budget, the gross tax revenue estimate for 2024/25 is projected to be R22.3 billion lower.

Godongwana said that over the next two years, the main budget revenue estimate has also been lowered by R31.2 billion.

“In the absence of faster growth and in the face of external risks, tax revenue will remain under pressure, forcing us to make difficult decisions on where to spend,” he said.

“Lower revenue also means that we cannot, within the envelope, accommodate all of the demands on the fiscus. Difficult trade-offs, in all spheres of government, will have to be made.”

“By sticking to our debt-reducing strategy and confronting these trade-offs, we can create the necessary conditions for a fast-growing economy that facilitates employment.”

The lower revenue in 2024/25 is due to multiple areas of decline in the collections.

Import VAT collections contracted 4.5% relative to the same period in 2023/24 – this was driven by lower imports of energy-related components as load shedding became less pronounced and eventually suspended for most of the year.

While customs duty collections grew moderately, Treasury expects this to fall short of February’s estimates.

Fuel levy collections have also contracted, he said. This is due to lower fuel demand, as well as a large once-off diesel refund which will be settled later this year.

When it comes to income tax, this is also expected to underperform.

This is due to private sector employment and wages being weaker than anticipated at the time of the February budget.

While these shortfalls will negatively impact government revenue, it has been offset somewhat by some positive results.

Domestic VAT collections are expected to exceed projections, while the outlook for corporate profits has improved considerably, given the easing of supply-side constraints.

“Improved sentiment and reduced inflation and borrowing costs auger well for consumers’ purchasing power,” Treasury said.

Treasury noted that the country’s tax-to-GDP ratio is expected to remain at 24.5%. An increase to the ratio would depend on higher and sustained economic growth.

Overall spending in the budget has been increased by a net R10.4 billion for the year, accounting for R2 billion in rollovers, R5 billion for the Gauteng Freeway Improvement Project (ie, e-tolls, of which, Gauteng is covering R3.8 billion), SANDF troop deployment to the DRC, R2.1 billion in other unforseeable and unavoidable expenditure, and other expenses.

R19 billion in extra costs has been buffered by R8.7 billion in downward adjustments due to understanding, drawdowns from the contingency reserve and others.

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