South Africa: SARS Welcomes Treasury Commitment to Reducing Budget Deficit, Economic Growth

The South African Revenue Service (SARS) has welcomed the commitment made by the Minister of Finance Tito Mboweni to reduce the budget deficit and achieve higher economic growth.

The Minister made the commitment when he presented the Medium Term Budget Policy Statement (MTBPS) in Parliament on Wednesday.

The 2020 MTBPS outlined a fiscal consolidation plan to limit the growth in government operational spending and support economic growth over the medium term as outlined by President Cyril Ramaphosa in the Economic Reconstruction and Recovery Plan.

The MTBPS states that the global economy is returning from the depths of its collapse in the first half of 2020, due to eased COVID-19 lockdowns, unprecedented as well as rapid policy support by central banks and governments globally.

Global growth is now projected by the IMF to contract by 4.4% in 2020, 0.8 percentage point higher than the June 2020 forecast.

South Africa's real economic growth is expected to plummet in 2020 as seen in the downward revision of the GDP growth forecasts, primarily due to restrictions on economic activity to contain the spread of the COVID-19 virus.

"The economy was underperforming prior to the COVID-19 shock, contracting for three consecutive quarters before the lockdown. The domestic economy contracted by 16.4% in Quarter 2 of 2020, the biggest decline since 1960 - marking the fourth quarter of the recession in 2020. The IMF forecasted a contraction of -8% (2020), thereafter a growth of 3% (2021) for South Africa," said the SARS in a statement.

In the 2019/20 financial year, SARS collected a net amount of R1 355.8 billion, against the Revised Estimate of R1 358.9 billion, resulting in a shortfall of R3.1 billion (-0.2%) and a growth of R68.2 billion (5.3%) from 2018/19.

The Printed Estimate for 2020/21 was R1 425.4 billion with a required growth of in tax revenue of 5.1%.

"This estimate was revised down in the June 2020 Supplementary Budget to R1 121.3 billion due to the COVID-19 pandemic. The revised Supplementary Budget estimate of R1 121.3 billion represented a contraction of R234.1 billion (-17.3%) against the previous year," said the revenue collector.

In the June 2020 Supplementary Budget, government made provisions for taxpayers to alleviate tax obligation pressures induced by the COVID-19 pandemic.

A total of 252 398 taxpayers have made use of the relief measures with a total of R52.7 billion deferred as follows: R1.6 billion (PAYE), R33.0 billion (provisional tax), R19.2 billion (customs and excise) of which R18.4 billion is for alcohol beverages and tobacco producers.

As at 30 September 2020, SARS collected R518.8 billion, with a surplus of R9.3 billion (1.8%) against the June 2020 Special Estimate, and a shortfall year-on-year of R117.0 billion (18.4%) in nominal terms. All tax types recorded a shortfall. The major tax types performed as follows against the prior year: PIT Net (-12.0%), CIT Net (-24.9%), Net VAT (-15.0%).

Subject to available funding, SARS says it will continue rebuilding its enforcement capabilities and tools; enhancing its data matching capabilities and make more use of artificial intelligence.

SARS Commissioner Edward Kieswetter in the statement said: "Low real growth in the economy coupled with low inflation rates does reduce the revenue potential from taxable activities. There is a close correlation between growth in tax revenue and growth in nominal GDP - which is really a measure of economic performance."

Kieswetter added that improved tax collection and administration continues to be an important element in achieving fiscal consolidation, as SARS continues to rebuild its capacity.

As an organisation, the service's near-term objectives include:

- Finalising the tax gap study in December 2020 to quantify the difference between how much tax should be collected and how much is collected.

- Remaining focused on international taxes, particularly aggressive tax planning using transfer pricing.

- Increasing enforcement to eliminate syndicated fraud and tax crimes.

- Continuing to use third-party data to find non-compliant taxpayers.

- Collecting PAYE pay-as-you-earn and VAT debt, and ensuring that outstanding taxpayer returns are filed and liabilities paid."

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