9 April 2020 by Tax & Exchange Control Alert

Expectations exceeded? SARS releases revenue data for 2019/2020

On 1 April 2020, the South African Revenue Service (SARS) issued a media statement announcing the preliminary revenue outcomes for the 2019/2020 financial year (Media Statement).

According to the Media Statement, while the 2020 budgeted revenue for this past fiscal year was R1,359 billion, SARS collected a net amount of R1,356 billion. This is an increase of 5.3% in net collections from the 2018/2019 financial year and comprised a gross collection of R1,647.8 billion, which was set off against refund payments by SARS amounting to R291.9 billion.

Even though the Media Statement indicates that there was an increase of 5.3% in net collections in this financial year, these collections indicate a deficit of R66.2 billion (being 4.7%) when measured against the budget presented in 2019, and a deficit of R3.1 billion (being 0.2%) measured against the budgeted figures presented in 2020.

The Media Statement indicates that the following were the main sources of revenue for the 2019/2020 financial year:

  • Personal Income Tax (PIT), constituting 39% of the net collections;
  • Value Added Tax (VAT), constituting 25.6% of the net collections;
  • Company Income Tax (CIT), constituting 15.8% of the net collections; and
  • Customs duties, constituting 4.1% of the net collections.

From the figures disclosed by SARS, it is evident that revenue collection has continued with the trend of being increasingly dependent on the collection of PIT in order to meet the budgeted figures. The Media Statement indicates that this is due to tax policy changes implemented by National Treasury, in particular the introduction of partial fiscal drag relief.

The Media Statement further states that the impact of weak economic growth and lower consumer and investment spending in South Africa’s economy is evident in the overall collection of VAT and import duties, which have continued to decrease in terms of their relative contribution to the total tax revenue collected. In addition, the CIT collected in the 2019/2020 financial year also evidences the impact of the struggling economy on businesses, as the CIT collected decreased from 16.6% of the total revenue collected in 2018/2019 to 15.8% of the total revenue collected in 2019/2020.

SARS has indicated that these results are preliminary and will be subject to detailed financial reconciliation and a final audit.

Comment              

Despite the deficit in the total revenue collected in the 2019/2020 financial year, it is promising that the yearly revenue collection appears to at least be systematically increasing. The graph below (published by SARS) is indicative of the upward trend of revenue collection in recent years, notwithstanding the perceived plateau that stemmed from the 2014/2015 to 2017/2018 financial years. 

 

ALERT Tax 9 April 2020_Image

In keeping with this trend, the 2020 Budget estimated that revenue collections for the 2020/2021 fiscal year will amount to approximately R1,430 billion, an increase of 4.9% from the previous year. The 2020 Budget also seeks to reduce the main budget expenditure baseline by R156.1 billion over the course of the next three years.

However, recent events, both locally and internationally, may have a detrimental effect on the abovementioned positive trend in revenue collection and these optimistic 2020 budgeted figures.

The COVID-19 pandemic has resulted in a national lockdown in South Africa, placing significant strain on the economic activity in the country. In particular, from a tax perspective, the income producing capacity of the majority of businesses and individuals has been limited in some or other respect, with the potential result being lower than projected revenue collection by SARS in the 2020/2021 fiscal year. 

This is aggravated by the recent downgrade of South Africa’s sovereign credit rating to “junk” status by ratings agency Moody’s Investors Service.

It remains to be seen what the ultimate impact of the COVID-19 pandemic and the downgrade in South Africa’s credit rating will be on SARS’ revenue collection for the 2020/2021 fiscal year.

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