Tax collections for the first three months of the fiscal year are running well ahead of budget, with company taxes shooting the lights out for a second consecutive year as the public purse continues to benefit from the global commodities boom.
But while tax experts expect that finance minister Enoch Godongwana could report a revenue overrun of at least R50bn when he presents his medium-term budget later this year, they warn the boom times will not continue and the pace of tax collections is likely to slow.
This comes after revenue was more than R200bn above budget estimates for 2021/2022, the previous fiscal year, with soaring commodity prices boosting mining profits and most of the tax categories delivering more than the finance minister had expected. The Treasury budgeted in February for a slim 2.2% increase in tax revenues for the 2022/2023 fiscal year, prompting several economists to accuse it of being too conservative.
The outcome so far seems to vindicate them. The Treasury’s latest monthly figures show tax revenues for the three months to end-June were up 10.6% compared with the same period last year, suggesting the full-year outcome could be well ahead of its 2.2% projection.
The major contributor has been corporate tax, which jumped 14.4% for the fiscal year to date off a high base in the previous year — indicating the Treasury’s projection of a 15.8% decline in corporate income taxes was too conservative.
“It’s looking very positive at this early stage,” said PwC tax partner Kyle Mandy on Friday, though he warned of downside risks. The Treasury budgeted for total corporate income tax collections of R270bn for the current fiscal year, which began on April 1, of which R112bn has already been collected, he said.
Resources off the boil
“Though we don’t have detail in terms of what the contributors are to corporate income taxes, we expect it’s primarily still out of the resources sector — though this is expected to come off the boil ... with resource prices already sliding.”
June and December are traditionally the big months for corporate tax payments. But the end-June figures show other taxes are also ahead, with personal income tax collections up 11% against a full-year budget projection of 6.1%.
Mandy said higher-than-projected wage settlements were likely to cause personal tax to continue to outperform budget projections, though not as sharply as last year. And while the overall trend in VAT collections was so far in line with budget, VAT on imports and customs duty collections were running way ahead of budget, reflecting higher imports this year. Budget projections had import VAT up 4%, but the year to date increase is 35%, with customs duty collections also up by about 36%.
If tax collections were to continue for the rest of the fiscal year at the pace they set in the first three months, they would overshoot budget projections by R130bn. However, Mandy said somewhere between R50bn to R100bn was more realistic given the risks, especially in relation to VAT, with the economy slowing and consumers’ disposable income under pressure.
Absa economist Peter Worthington said data so far this year pointed to a budget performance that was even stronger than last year’s, when commodity prices were sky-high. Absa’s economists now expect a main budget deficit of 4.9% of GDP for the current fiscal year, significantly better than the Treasury’s 6% projection in February.
Big spending
Data so far suggests another bumper year for corporate tax receipts, Worthington wrote in a note last week: “Despite some recent softening, commodity export prices remain high overall and mining houses have probably exhausted any scope to reduce their tax liabilities via deductions for assessed losses.”
But he flagged risks to VAT and other spending-related tax receipts due to rising pressure on consumers.
And he warned of big spending pressures, including the public sector wage talks, further bailouts for state-owned enterprises and SA’s fragile sociopolitical situation, including the potential need for more government spending in the event of further civil unrest.
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