VAT refunds behind expected dip in tax revenue
Tax revenue for the 2018/2019 fiscal year is expected to miss the target set in the medium-term budget policy statement
Tax revenue for the 2018/2019 fiscal year is expected to be R15.4bn lower than the forecast made in the medium-term budget policy statement (MTBPS) in October, bringing the total shortfall compared with the 2018 budget to R42.8bn.
The revenue shortfall in the medium-term budget was estimated at R27.4bn.
Finance minister Tito Mboweni said in his budget speech on Wednesday that “approximately half of the increase in the shortfall since October is due to higher-than-expected VAT refunds”.
In terms of the 2019/2020 budget, the revised gross tax revenue for 2018/2019 is R1.3-trillion, rising to R1.4-trillion in 2019/2020.
The revenue shortfall reflects a weaker economic outlook, further increases to VAT refunds and problems with tax administration, as highlighted by the Nugent commission of inquiry into the SA Revenue Service (Sars).
“Economic weakness has fed through to lower personal income tax and corporate income tax receipts. Administrative weaknesses in collection were a contributing factor,” it was noted in the Budget Review. “Revenue collection has deteriorated since the 2018 MTBPS.”
Corporate income tax is projected to yield R21bn less than the R773bn projected in the 2018/2019 budget; personal income tax R8.4bn less than the R505.8bn projection; VAT R22bn less than the R348bn forecast; and the fuel levy R2bn below the R77.5bn estimate.
The health promotion levy (sugared beverages tax) is projected to generate R2.3bn in 2019.
Corporate income tax has declined predominantly due to reduced production in mining and quarrying, as well as from the financial sector.
“Job losses, lower wage settlements and reduced bonuses have put pressure on withholding taxes on earnings,” the Treasury noted in the Budget Review.
“Higher diesel refund payments to electricity generation plants and primary producers such as farmers and mining companies have slowed fuel levy collections. Tax collections relating to trade performed better in the latter half of the year, with higher estimated revenue from customs duties and import VAT.
“Domestic VAT also performed as expected after the increase in the VAT rate. However, net VAT collections have been considerably lower since October, when Sars accelerated payments of VAT refunds.”
Allegations have been made that Sars, under the leadership of former commissioner Tom Moyane, deliberately withheld VAT refunds in order to boost tax revenues.
Sars has increased the amount it has to pay out in VAT refunds by R8bn compared with the figure provided in the medium-term budget policy statement (MTBPS). The VAT refund estimate was lifted R9bn in the medium-term budget. Personal income-tax refunds have also been revised upwards.
According to the Budget Review, overdue VAT refunds rose from R30.4bn at the beginning of the fiscal year to R41.8bn in September 2018. By end-January, the credit book had decreased from R41.8bn to R31bn.
“Although these interventions have reduced tax revenues for 2018/2019, the normalisation of refund payments will minimise the risk of fiscal shocks in future and provides business with more certainty about cash flow. It will also provide greater certainty about revenue projections.”
No specific tax increases were announced in the budget.
Mboweni said judge Dennis Davis would assess the tax gap — the difference between revenue collected and what ought to be collected. The proliferation of duty-free shops in the country would also be reviewed.