The Treasury has forecast an increase of R120.3bn in its gross tax revenue in the current fiscal year in the medium-term budget policy statement (MTBPS).
The commodity boom is largely responsible for this bonanza but is not expected to continue in future years. The improved economic growth performance and strong income tax collections — especially from corporates — have also contributed to the better result.
“Tax collections have exceeded expectations in the short term,” finance minister Enoch Godongwana said in his budget speech in the National Assembly on Thursday. “Taxes paid by the mining sector have been strong due to the commodity price rally that continued through the first half of 2021. Notably, however, precious metal prices have started to soften. This means that revenue gains from the commodity price rally are expected to be temporary.”
Corporate income tax is expected to be R75.5bn higher at R288.6bn than the February forecast; personal and individual tax R26.1bn higher at R542.1bn and VAT R3.5bn higher at R373.6bn. This will bring total tax revenue to R1.485-trillion compared to the R1,365-trillion forecast in the February budget.
“After falling by 7.8% last year, tax revenues rose appreciably in the first six months of 2021/2022,” the minister said in the MTBPS. “Corporate income taxes in particular have 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 2021/2022 was 44.1% higher than the equivalent period in 2019/2020 primarily driven by the mining and quarrying sector.”
Higher export prices have boosted the profitability of the mining sector and there have also been improved collections from manufacturing and finance.
There has also been a strong recovery in wage earnings with both nominal and real average wages close to 2019 levels by the first quarter of 2021.
Another factor has been what Godongwana said was the “resilient household consumption and the economic recovery buoyed by strong earnings, low borrowing costs and larger social transfers, which strengthened domestic VAT collections”.
On the other hand, import VAT and customs collections were lower due to trade disruptions, despite the improved import volumes in the first half of 2021.
The strong improvement in revenue performance is not expected to persist, however, and the Treasury forecasts growth of R69.8bn in 2022/2023 and R59.5bn in 2023/2024. From growth of 18.9% in 2021/2022, gross tax revenue is expected to grow 2.8%, 5.3% and 6.7% in the following three years to reach R1.715-trillion in 2024/2025.
Corporate income tax is expected to decline from the forecast R288.6bn in 2021 to R228.4bn in 2022, R220.4bn in 2023/2024 and R230.7bn in 2024/2025, while the other major tax categories of personal income tax and VAT are expected to increase more than 6%.
Tax buoyancy is forecast to decline from 1.73% in 2021/2022 to 0.99% in 2022/2023 and 0.97% in 2023/2024, meaning that tax collections are forecast in future to be lower than the rate of economic growth. Treasury chief director of economic tax analysis Chris Axelson said in response to a question that this decline in tax buoyancy was partly a reflection of the softening of commodity prices.
The MTBPS does not include any announcements on tax measures but what could be introduced in future is the already announced drop in the corporate tax rate to 27%. Godongwana said an announcement on this would be made in the February budget.
No tax increases have been provided for over the medium-term expenditure framework for the next three years.
“The commodity price rally and resulting terms of trade benefits are expected to remain supportive for the rest of 2021/2022 but export prices are expected to decline with an associated deterioration in the terms of trade in the outer years of the forecast,” the minister said in the MTBPS. “Similarly slow employment growth and lower employment levels limit personal income tax projections. The outlook for several major tax bases has been revised lower relative to the 2021 budget.”
Revenue collections remain well below pre-pandemic expectations and Treasury says that in this sense the updated numbers “flatter to deceive”. Revenue from 2020/2021 through to 2022/2023 is forecast to be R284,7bn below the 2020 budget projections until 2022/2023.
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