The SA Revenue Service (SARS) last week announced a tax shortfall of R175.2 billion, compared to its original estimate of a R312.8bn under-recovery made a year ago. Photo: File
The SA Revenue Service (SARS) last week announced a tax shortfall of R175.2 billion, compared to its original estimate of a R312.8bn under-recovery made a year ago. Photo: File

Tax shortfall improves after better collections in second half of last year

By Siphelele Dludla Time of article published Apr 6, 2021

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JOHANNESBURG - SOUTH Africa’s fiscal metrics have deteriorated further as the Covid-19 pandemic has severely contracted tax revenue for the year ending March 31, 2021.

However, the SA Revenue Service (SARS) last week announced a tax shortfall of R175.2 billion, compared to its original estimate of a R312.8bn under-recovery made a year ago.

SARS said that it collected R1.250 trillion in tax revenue in the year ended March 2021, which was around 12 percent less compared with the government’s original February 2020 target of about R1.425trln.

The initial 2020/21 target of R1.425trln was set by the National Treasury before the Covid-19 pandemic led to a nationwide lockdown in March last year.

After the economic decline, business closures and job losses through the pandemic, the Treasury revised the estimate down to R1.112trln in October.

However, the Treasury then again revised tax revenue estimate upwards to R1.212trln in the February 2021 budget, due to a better than expected economic recovery in the fourth quarter of 2020, as the economic lifted after lockdown restrictions were lifted.

As a result, the R1.250trln tax collection figure was R38bn more than the full year tax revenue estimate of R1.212trln forecast.

SARS Commissioner Edward Kieswetter said the main drivers of the reported revenue were the impact of renewed tax administrative efforts to improve taxpayer compliance.

He said the mining and the financial services sectors performed better than expected, as well as pent-up trade demand from the first half of the year, that had caught up in the second half.

Domestic and global constraints on economic activities and the related tax relief measures implemented in lieu of the Covid-19 pandemic restrictions also played a role in the revenue.

“Against this I am extremely happy to announce a tax revenue result of R1.250trln, which exceeds the February estimate by R38bn,” Kieswetter said.

“Stated otherwise, we have reduced the October revenue estimate of an under-recovery from R312.8bn to R175.2bn.

“This means that SARS reports an additional R138bn as a result of a slightly improved economy and focused compliance efforts for the year.

“Within the context of the economic contraction, the revenue reported year-on-year is down 7.8 percent, but represents an improvement of 3.1 percent against the revised estimate of February 2021, and 12.3 percent against the medium-term budget estimate of October 2020.”

Ratings agencies warned in February that even with a less severe fall in revenue of 11 percent than the 16 percent forecast in October, year-on-year revenue loss would still be about 2 percentage points of gross domestic product (GDP).

South Africa would need every rand it can collect to meet the basic needs of the citizens and pay for millions of Covid-19 vaccines for the economy to recover.

Kieswetter said the revenue agency would now focus on stricter compliance, especially by high net-worth individuals, to close the gap.

SARS has now set itself a target to raise tax revenue by R114.9bn for the 2021/22 financial year to R1.365trln, representing a growth of 12.6 percent.

The agency said the main assumptions underpinning this estimate was nominal growth in GDP of 8.8 percent, with a tax-to-GDP extraction ratio of 25.5 percent.

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