POLITICAL NEWS - New Minister of Finance Tito Mboweni will have been in the job barely two weeks when he has to present the Medium-Term Budget Policy Statement (MTBPS) in Parliament on October 24. His own contribution to what he delivers is likely to be minimal, given that most of it must already have been finalised by National Treasury and cabinet.
He will, however, be the face of a serious government conundrum.
In February, then finance minister Malusi Gigaba projected that the South African Revenue Service (Sars) will collect R1.345 trillion. That is the figure required to make the budget he presented work.
The first major question Mboweni will have to answer is whether that target is still achievable. Given that South Africa was in recession for the first six months of this year, will Sars still get there?
The impact of recession
“It’s no secret that our revenue targets are aligned with our economy,” says Mike Teuchert, national head of taxation services at Mazars. “If the economy chugs along well then we are in a position to reach our targets. If the economy doesn’t reach the growth projections, then there is a high likelihood we won’t.”
Back in February, the consensus view was that South Africa’s economy would grow at around 1.5%. That has since been revised down significantly, and 1% growth would be a good outcome from where the country is now.
This indicates a very difficult operating environment for companies. If they struggle to generate profits, that creates a ripple effect with serious negative consequences for tax collection.
“On the corporate income tax side, if companies are not doing well, not making profits, you will see an impact on how much tax they pay,” Teuchert points out. “They might also not give increases or they could trim their staff complement, and as a result personal income tax revenues could be affected. If consumers don’t have income because they don’t have employment, Vat collections could be under pressure as well. So, overall, it’s not great for Sars and Treasury if we have an economy that is not growing at the expected level.”
The problem this creates for Mboweni is that if Sars is not going to achieve its collection targets, what can be done about it? The country has already had to increase taxes substantially over the last few years. Will the finance minister have to consider doing even more?
More tax increases?
Historically, no changes to the tax regime are implemented at the MTBPS. However, the minister may give indications of what the government is thinking.
The trouble for Mboweni is that there are few places left for hikes to take place. Personal income taxes, which make up the bulk of tax revenues, have already been raised to a point where further increases are unlikely to result in higher collections.
