R22 billion tax blow for South Africa – ‘difficult trade-offs’ coming
Enoch Godongwana, the Finance Minister of South Africa, recently spoke about worries over the South African Revenue Services (SARS). He said that SARS is expected to miss its revenue target for February by R22.3 billion. This shortfall could have serious effects on the country’s finances. It may impact the funding for essential services and development projects.
Godongwana stressed that this revenue gap is not just a number. It shows the bigger economic problems our nation faces. He noted that without strong economic growth, South Africa will have to make tough budget choices. These choices might mean cutting public services, delaying infrastructure projects, or changing social welfare programs. Each of these decisions could greatly affect the people of South Africa.
The Finance Minister's comments show the urgent need for smart economic policies. These policies should help growth and increase revenue. He stressed the importance of creating a good environment for investment and job creation. This is vital for improving the economy and the revenue collected by SARS.
On Wednesday, October 30, the minister presented the medium-term budget policy statement (MTBPS). He said that the gross tax revenue estimate for 2024/25 is expected to be R22.3 billion lower than the 2024 Budget.
Godongwana said that in the next two years, the main budget revenue estimate has been reduced by R31.2 billion.
"Without faster growth and with outside risks, tax revenue will stay low. This will force us to make tough choices about spending," he said.
"Lower revenue means we cannot meet all the demands on our budget. Tough choices will need to be made in all areas of government."
"By following our plan to reduce debt and facing these trade-offs, we can build a strong economy that creates jobs."
The lower revenue in 2024/25 is due to multiple areas of decline in the collections.
Import VAT collections fell by 4.5% compared to the same time in 2023/24. This drop was due to fewer imports of energy-related components. Load shedding became less severe and was mostly suspended for the year.
Customs duty collections increased a bit, but the Treasury thinks this will be less than February’s estimates.
Fuel levy collections have also decreased, he said. This is because of lower fuel demand and a large one-time diesel refund. This refund will be settled later this year.
When it comes to income tax, it is also expected to do poorly.
This is because private sector jobs and wages were weaker than expected during the February budget.
These shortfalls will hurt government revenue. However, some positive results have helped balance the impact.
Domestic VAT collections are expected to be higher than expected. The outlook for corporate profits has also improved a lot. This is due to the easing of supply-side constraints.
Treasury said that people feel more positive about the economy. Lower inflation and borrowing costs are also helping. These factors are good for consumers' buying power.
The Treasury noted that the country's tax-to-GDP ratio is expected to stay at 24.5%. An increase in this ratio would depend on stronger and lasting economic growth.
Overall spending in the budget has increased by R10.4 billion for the year. This includes R2 billion in rollovers. It also covers R5 billion for the Gauteng Freeway Improvement Project, which includes e-tolls. Gauteng is paying R3.8 billion of this cost. Additionally, funds are allocated for SANDF troop deployment to the DRC. There is also R2.1 billion for other unexpected and unavoidable expenses.
R19 billion in extra costs has been reduced by R8.7 billion. This reduction comes from understanding, drawdowns from the contingency reserve, and other factors.
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