Edward Kieswetter’s missing R22 billion
This year, SARS is set to collect R22.3 billion less than the February Budget promised, with little hope of recovering before the end of the year.
Finance Minister Enoch Godongwana’s Medium Term Budget Policy Statement (MTBPS) this week revealed that the country is expected to collect nearly R22.3 billion fewer taxes than the February Budget predicted.
Edward Kieswetter, Commissioner of the South African Revenue Service (SARS), explained on The Money Show with Stephen Grootes that there are three main reasons for this shortfall.
“There’s a direct correlation between what happens in the economy with what ultimately happens to tax collection.”
According to Kieswetter, there are three areas where there is a marked shift from the assumptions on which the February estimate was based compared to what was actually delivered.
“The first is that we are under recovering about R12 billion from individual taxes. When the budget estimate was provided, there was an assumption that the wage bill would grow by 8.4%.”
However, to date, the wage bill has only grown by 5.4%, which means it is 3% lower than expected, and income taxes are also lower than expected as a result.
“That’s the one explanation.”
The second reason, he explained, is both good and bad news.
“The good news is Eskom is performing better. A lot of rooftop solar has replaced a lot of the traditional, diesel generators, which has also meant there is 11% decline in the year-on-year diesel usage, about 1.33 million fewer litres of diesel.”
“And that’s good news because obviously it means we have more reliable electricity. But the bad news is that we’re using less diesel.”
“Therefore, diesel levies are lower– and that has given us a R8.4 billion dent.”
The third reason, Kieswetter said, is that South Africa’s imports were lower than expected this year.
“At the time of the budget, the assumption was that our imports would grow by 1.9%.”
However, South Africa’s imports actually decreased by 3.7%, “and that translates through to import VAT being down”.
As a result, import customs have also been lower this year.
“Combined, that has given us a deficit of R15.7 billion. Those are the three biggest contributors towards the downward trend,” Kieswetter said.
“To offset that slightly, we’ve had corporate taxes, particularly in the middle to smaller business areas that have performed better than expected. And that has added some positive uplift to the numbers.”
“In the projection going forward, we think that that will carry through.”
In the second half of the year, SARS also had a tax boost from the new two-pot retirement system, which taxes early withdrawals at the marginal rate.
“To date, we’ve seen just over 1.6 million applications to whom to which we’ve given directives. That amounts to about just over R29 billion of funds that will be withdrawn, and that will translate through to a tax of R7.26 billion.”
Looking forward, this will continue providing a nice bump towards South Africa’s annual tax revenue. However, other factors may only to produce fewer and fewer taxes for the country.
“We don’t think that the diesel usage will recover, and therefore the fuel levy won’t recover.”
“There may be some recovery on individual taxes because of delays in wage negotiations, and where it will finally settle may bring about a little bit of respite.”
“Then, of course, if the consumption improves, it means that there will be more imports, and that will translate through to an uplift in import VAT and customs duties.”
However, he added that it is unlikely that these improvements and the provisional taxes from companies will be enough to replace the year-to-date shortfall.
This is why the minister has settled on R22 billion short of the February estimate, Kieswetter explained.
What is also noteworthy is that South Africa is performing much worse in debt collection, “and that also is a reflection of what’s happening in the economy”.
“We’ve seen many people not disputing their debts. We’ve actually worked through more cases this year, (year-to-date) than last year.
“More people are asking us for debt repayment arrangements, which also means that we will not recover debt that is due to the state because people are just experiencing hardship.”
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