Tuesday, January 28, 2020

WILL CONSUMERS BE ULTIMATE BEARERS OF SARS MISSING COLLECTION TARGET?






Heading into the second month of the new decade, a lot will be expected from South Africa Finance Minister Tito Mboweni when he delivers the Annual Budget speech inter alia, whether the consumer will shoulder the ultimate burden of the country’s receiver of revenue’s inability to meet its tax collection targets for the financial year ending March 2020 which should be consistent and in the core complement of state budget. The CAGR for the period of 2007/08 to 2016/17 as the same as that of a decade 2009/10 to 2018/19 at 8%. The 2007/08 to 2016/17 period pencilled an upsurge of 25% in Tax Revenue average ratio as a percentage of GDP.

SARS’s last 10-year review was conducted back in 2017, Personal Income Tax as proportion of total tax revenue increased from 29.6% in 2007/08 to 37.2% in 2016/17, with CAGR of 10.8% and a contribution of 8.4%. Import and custom duties accounted for 17.7% of the total tax revenue, 4.5% towards a decade GDP and CAGR was at 7.2%. Weak economic activity over the past years restricted growth rates in Company Income Tax descending from 26.7% in 2007/08 to 18.1% in 2016/17 after perturbing hiccups in manufacturing and mining sectors coupled with electricity supply shortages. Value-Added-Tax (VAT) is the largest contributor accounting for 25.9% of the Total Tax Revenue and 6.4% of GDP. CAGR was at 7.5%.

YEAR
TAX COLLECTION
% CHANGE
2010
598,7

2011
674,2
12,61%
2012
742,6
10,15%
2013
813,8
9,59%
2014
900
10,59%
2015
986,3
9,59%
2016
1070
8,49%
2017
1144,1
6,93%
2018
1216,5
6,33%
2019
1287,7
5,85%

On the report of 2017 compiled by SARS, the financial crisis in 2008/09 looked to have had pernicious effect on the TAX collections, the Company Income Tax battled to rebound as it was the slowest component to recover. 2009/10 saw Import VAT plummeting 23.6% while Custom duties bled 14% in each of the 2008/09 and 2009/10.

For the past decade, SARS has seen their tax collection from different contributors increase at a diminishing rate after the last period they had an increase of double figures was back 2014 with 10.59% increase. But these increases were going to do the country a world of good if they were complemented by a controlled increase or decline of government deficit, ironically the latter has been on the has been dancing around 4.4% in the past decade and with no signs that it would soon come within the govt control as the Debt to GDP is hovering around 60%

The parastatals such as Eskom, SAA and SABC have become heavily and financially reliant on government as they are struggling to bootstrap and leading to more and more funds of bailouts being pumped into SOEs in an attempt to salvage their operations or defend against going concern risks. Recently, President Cyril Ramaphosa placed the South African Airways under business rescue whose main aim will be to salvage SAA business or atleast deliver a better return to creditors than a formal liquidation. This was before the country went dark to the stage 6 load shedding after losing capacity at Medupi coal-fired power station, while coal stockpiles and coal were flooded in Mpumalanga which ultimately compelled President to shortened his trip to Egypt to solve the problems at the power utility.

SABC was on the verge of a massive retrenchment with almost 1 000 employees expected to be offloaded and moreover, the public broadcaster failed to air the continental showpiece AFCON, ICC, IRB World Cup(have always been on our screens since the end Apartheid) and the start of domestic league matches(On SABC way before winning democracy) after citing financial constraints. The latter was resolved following an interventions by Communications Ministry, Sports Ministry and the league sponsors after SABC had ordered its Radio stations to stop airing even crumb of information and update relating to domestic league, leaving league sponsors with no choice but to force the Premier Soccer League to sort out their differences with the public broadcaster citing marketing risks posed by the issue

It is still not clear the SOE’s desparate needs for funds will be acceded to during this year’s national budget speech, as mid last year the only Rating Agency that still have South Africa on their investment grade, Moody’s vehemently said that a further and extensive bailouts from the state to an ailing power utility is credit negative and just recently, President Ramaphosa ordered the Eskom board and administrative team to provide him with a turnaround Strategic planning that will get the parastatal’s operations back on its feet.

Towards the end of last year 2019, SARS was reported to headed for a R215 billion shortfall by year end with experts also forecasting a record shortfall of tax collections for the year ending March 2020. While the unemployment rate gains momentum despite President Ramaphosa having pioneered youth employment initiatives, there’s been increase in the annual tax revenue perhaps thanks to increases in basic salaries earnings, bonus and overtime(STATSA 2nd quarter, 2019) which contrast with number of graduates flocking into the job-market space coupled with a staggering number of job losses in the extraction sector that are eye-watering and fuelling the unemployment rate and then leaving efforts to address weak growth, poverty and dire standard of living puzzled.

If the Govt raises tax, this will push electricity prices even higher plus Eskom has been operating at times courtesy of imported diesil to avoid further load sheddings- this will further force consumers to deepen hands into their pockets and it gets far worse when the local unit depreciates which eventually makes foreign goods expensive

As the local currency becomes vulnerable due to the state financial mismanagement, then foreign goods become more expensive particularly fuel and travel costs. SA has a fragile creditworthiness and add the tax shortfall to the equation, would increase the cost of acquiring money causing an upward pressure on interest rates making it more difficult for consumers to afford cars, house and basic stuff such buying clothes on credit as commercial banks would look to drip the effect of an increase in rates down to the borrowers.

Government has been laboring to service its debt for sometime, SA creditworthiness has been warned with an outlook downgrade to negative towards the end of last year, SARS over the last 12 or less months has been hobbling against their collection targets and future of bringing the SOE’s debt is doubtful if not unlikely, most likely and further job losses could be expec and all of these posing sovereign risks and giving Moody’s more grounds of justification as to why SA should be downgraded. These would probably leave government with no choice but to plug increment on the tax rates to improve their SARS collection to keep it abreast with expenditure and deficit during the next budget speech.



By: Mmamoloko E. Boshomane
Blog: eraeconomist.blogspot.com


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