Despite strong tax collecton figures in December, Absa says South Africa should watch out for consumption-related taxes and corporate profitability being hit hard by continuous load shedding.
On 31 January, the National Treasury published fiscal data for the December 2022 main budget, pointing to a R45 billion budget surplus, with overall strength in tax collections.
However, from April to December, the cumulative deficit is 16.4% lower than the previous period, said Absa.
This suggests some risk that the primary budget deficit this year could undershoot the Medium Term Budget Policy Statement (MTBPS) target of 4.9% of GDP, it said.
Absa said that tax collections could soften over the first quarter of this year, with load shedding likely to hit VAT receipts and other taxes on consumer spending and corporate profitability.
Given that context, Absa now forecasts a primary budget deficit in FY22/23 of 4.6% of the GDP.
According to Absa, over December, personal income taxes (PIT), in particular, posted a second consecutive strong month of 11.8% growth year-on-year.
“Meanwhile, corporate income tax (CIT) receipts were up 3.9% year-on-year in December, which is a solid and somewhat unexpected performance given the decline of commodity export prices and the challenges bulk mineral producers have experienced with Transnet’s freight rail logistics,” Absa added.
Even if corporate income tax levels are strong, they are not guaranteed, the bank warned.
Absa pointed to the strong CIT results in June last year, noted by the MTBPS as owing to good profitability in the finance and manufacturing sectors.
Regarding the manufacturing sector, bottom lines have likely faced significant blows, with costs for diesel generators adding up while companies struggle to ride through load shedding periods, Absa said.
“Meanwhile, after soaring in November, VAT refunds slumped in December. This left net VAT receipts up 21.8% y/y in December, after a 21.5% fall in November, with the two months together down 0.8% overall. Meanwhile, in a similar pattern to that shown by revenues, the main budget expenditure rose 7.8% y/y,” said Absa.
“The December outcome owes to still-robust tax collections, but load shedding will likely hurt. After some weakness in September-November, when gross tax collections grew only 2.7% y/y on average, they increased by 8.8% in December.”
With the possible dwindling of personal income and corporate income tax, the South African Revenue Service (SARS) mandate has taken centre stage.
Over the past year, guided under commissioner Edward Kieswetter, SARS has ramped up its crackdown on non-compliance in South Africa.
According to tax experts, it seemed as if SARS was slowly modernising and preparing over 2021 and 2022 to initiate its zero-tolerance approach this year.
SARS issued 186,691 final demand notices to taxpayers during the 2023 Year of Assessment (March 2022 to Feb 2023) as part of their efforts to collect over R35 billion from roughly one million tax debt cases – highlighting an increase in SARS’ tax collection efforts. – BusinessTech