October revenue analysis casts alarmist image – Sars

The SA Revenue Service (Sars) appreciates the opportunity to correct a number of technical inaccuracies and the alarming commentary that “South Africa could face further rating downgrades” due to lower VAT collections, excise duties and receipts from the fuel levy.

Sars does not agree with such analysis which Business Report attributed to Azar Jammine, the chief economist at Econometrix, in “State income slump stokes budget fears” (Tuesday, December 4).

In assuming that the decline in revenue in October will affect the current budget deficit by the end of the 2012/13 year, Mr Jammine is erroneous.

The 2 percent decline in budget revenue for October was mainly due to higher payments to the Southern African Customs Union (Sacu). This was anticipated in the medium-term budget policy statement (MTBPS) estimates in October.

Payments to Sacu may distort total government revenue but they do not affect tax revenue. The assumptions that are made in the projection of the fiscal deficit are well known to ratings agencies; the monthly variations will not come as a surprise.

At the time of the MTBPS, provision was made for some of these variations by tabling expected revenue growth of only 8.2 percent for October to March as opposed to the 13.6 percent achieved from April to September, the first half of the fiscal year.

It should be noted that future monthly collection estimates are based on extensive statistical modelling and detailed analysis per tax type that takes into account activities in the economy which are closely monitored to ensure appropriate responses by the Treasury and Sars. Changes to budget assumptions and estimates, if any are required, are made at the annual Budget announcements by the minister of finance.

At this stage any intimation that there is a slump is premature and alarmist. Also, it is not clear why the article reports that the fuel levy declined when it increased by 14.4 percent from the previous year.

Specifically, care must be exercised in interpreting the decline in VAT collections. VAT refunds for October were 29 percent higher than in October 2011, which, it must be said, was abnormally low.

The monthly VAT refunds during 2012/13 follow a far more stable pattern and are therefore far more consistent and predictable on a monthly basis than was the case during 2011/12. VAT refunds for November and December 2011 were also below the average, which means if the current stable trend continues, VAT refunds are again likely to be much higher than the comparative periods. Because VAT is a consumption tax, it can be volatile. While tax collections may fluctuate from month to month, it is the trend for the full year that forms the basis for proper analysis.

It is statistically inaccurate to make inferences about a slump in revenue collections and predictions of increased budget deficits by looking only at comparative numbers for one month.

In the 2012 MTBPS, the minister of finance set a revised revenue target of R821.4bn, which Sars must collect by March 31, 2013. We remain confident that we will meet the revised revenue target.

We can only hope that Mr Jammine and Business Report will not be so alarmed.

Dr Randall Carolissen

Group Executive for Revenue Planning and Reporting, SA Revenue Service