NATIONAL Treasury said yesterday that tax revenue generation would be higher on the strength of the global commodity price surge, but these gains were temporary.
According to the 2021 Medium-Term Budget Policy Statement (MTBPS), tax revenue for 2021/22 has been revised higher by R120.3 billion to R1.5 trillion from R1.4 trillion projected in the 2021 Budget. Corporate income tax accounted for R75.5bn of the R120.3bn.
The Treasury said it expected stronger personal income tax receipts to bring in an additional R26.1bn relative to the 2021 Budget projections.
“The commodity price rally and resulting terms of trade benefits are expected to remain supportive for the rest of 2021/22, but export commodity prices are expected to decline, with an associated deterioration in the terms of trade in the outer years of the forecast,” it said.
The commodity super cycle has been one of the major boosters to the fiscus as mining companies posted mega profits as they rode the wave of the record price environment.
While the fiscus enjoyed the benefits of high commodity prices in 2021, the Treasury's revenue forecast from 2020/21 through 2022/23 is R284.7bn below the 2020 Budget projections as revenue collections remain below pre-Covid-19 levels.
The Treasury said a surge in commodity prices had significantly improved the in-year revenue outlook, although its effect was likely to be temporary.
“Revenue collections remain well below pre-pandemic expectations, and in this sense the updated numbers flatter to deceive,” the Treasury said.
It warned that the windfall commodity revenues were unlikely to provide significant additional revenues beyond 2021/22.
“Slower global growth, or a reversal of the commodity cycle, would negatively affect revenue collection,” it said.
The buoyant revenue from commodity price erased fears raised in February that the government would record the largest tax shortfall on record.
The Treasury said the higher-than-expected revenue collection had enabled the government to respond with a fiscal relief package amounting to R37.9bn. This included extending the special Covid-19 social relief of distress grant to the end of March 2022.
It said the windfall would be put to good use, including social support. The government would use the higher-than-expected tax revenue to reduce the deficit and provide additional short-term support for health, social protection, job creation and peace and security.
“This fiscal course will be maintained over the medium-term expenditure framework period, resulting in a primary budget surplus – where revenue is higher than non-interest spending – by 2024/25, bringing the period of fiscal consolidation to an end,” it said.
The MTBPS said in addition to increased corporate income taxes due to high commodity prices, the strong recovery in earnings, with both nominal and real average wages close to 2019 levels by the first quarter of 2021, supported personal income tax collection.
According to the MTBPS, after falling by 7.8 percent last year, tax revenues rose in the first six months of 2021/22.
The Treasury said corporate income taxes, in particular, had increased due to high commodity prices and a favourable ratio of export to import prices.
“Provisional corporate income tax collected in the first six months of 2021/22 was 44.1 percent higher than the equivalent period in 2019/20, primarily driven by the mining and quarrying sector,” it said. It expects tax revenues to increase to R1.72 trillion, or 24.1 percent of gross domestic product (GDP), by 2024/25.
Revenue was projected to average 23.7 percent of GDP over the medium term.
BUSINESS REPORT ONLINE