Surprise tax boost for South Africa

Treasury has published its updated monthly government revenue and expenditure data, showing stronger than expected tax revenue.

Gross government tax revenue amounted to R377 billion for the April to June 2021 period, up 56.2% versus the corresponding period in 2020.

Given lockdown effects in 2020, a better comparison is with April to June 2019. This still showed an increase of more than 19%, said economists from the Bureau for Economic Research (BER).

The revenue windfall mainly stems from strong mining corporate tax receipts amid elevated commodity prices. Corporate tax receipts from the financial sector have also been strong, the BER said.

“We have flagged the potential for revenue outperformance for some time. Indeed, in financial result presentations last week, mining giants Anglo American Platinum (Amplats) and Kumba Iron Ore reported large tax and royalty payments.

“Kumba said that it paid R9.2 billion in taxes and royalties in the first half of the year, more than double the R4.3 billion in the same period a year ago. On Monday, Amplats said it had paid R16.6 billion in taxes and royalties during the first half of 2021, up significantly from the previous year.”

Concern beyond 2021

While this windfall is set to help pay for the government’s recently announced Covid-19 and looting support, concerns lie beyond the current fiscal year.

It is unlikely that the mining sector tax windfall will be repeated much beyond 2021, at least not to the same extent, the BER said.

“Therefore, before the economy is on a stronger footing and able to generate higher, more sustainable non-mining tax revenue, we would caution against the introduction of additional, permanent income support measures such as the hotly debated basic income grant (BIG).

“On humanitarian grounds, there is plenty of justification for a BIG, but affordability remains a major challenge in the current constrained fiscal environment. Therefore, it is imperative that all social partners work together to fast track the implementation of GDP growth and employment enhancing reforms.”

In terms of the GDP growth impact of last week’s announcements, the monthly cash allowance for civil servants, as well as the extra grant payments, should soften the blow to consumer spending inflicted by the Covid-19 third wave, the associated harsher lockdown restrictions, as well as the looting shock, the group said.

Unrest

South Africa experiences similar better-than-expected windfalls in the first quarter of the year. however, the South African Reserve Bank noted last week that the destruction caused by the July 2021 riots and civil unrest – estimated to be over R50 billion – would likely negate any benefits.

SARB governor Lesetja Kganyago said that the domestic economy grew by 4.6% in the first quarter of 2021, much stronger than the 2.7% expected at the time of the group’s May meeting. That outcome reflected better sectoral growth performances and robust terms of trade. Commodity prices have remained high, sustaining income gains despite higher oil prices, he said.

“However, recent unrest and economic damage could have lasting effects on investor confidence and job creation. We estimate the unrest to have fully negated the better growth results from the first quarter, resulting in an unchanged estimate of 4.2% for growth in 2021.”


Read: Government’s plan to help businesses recover from looting and Covid-19 impact – including tax breaks

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Surprise tax boost for South Africa