South Africa got lucky with its taxes: CEO
The South African Revenue Service (SARS) published its preliminary revenue outcome for 2020/2021, reporting that it managed to exceed revised budgets for tax collections.
However, a closer analysis of the data shows that this good news is likely more due to luck than good policy interventions, says Business Leadership South Africa chief executive Busi Mavuso.
Mavuso said that the R1.25 trillion collection figure for the year is still R106 billion less than the R1.35 trillion collected last year (-7.8%) and R175.4 billion less than the R1.42 billion that had been budgeted for the year in February 2020 (-12.3%).
The good news is that it was a far better outcome than the R300 billion collapse in revenue that had been expected at the time of the emergency budget last year, she said.
The surprise positives were driven by higher provisional tax payments and royalties collections from mining companies on the back of a weaker rand and high prices for iron ore, platinum group metals and gold.
Provisional income tax by the mining sector was 57% higher than the year before. But the much larger finance sector saw a 15.3% reduction in income tax payments as profits collapsed. Manufacturing also fell 16% and community social and personal services fell 28.7%.
“The mining sector therefore saved us from a much worse outcome,” Mavuso said, noting that South Africa would be much better placed if it had appropriate policies in place to take advantage of the mining sector and other industries.
“Imagine if the 5,000 mining rights applications awaiting approval at the department of mineral resources and energy had been processed on time.
“Imagine if long-outstanding revisions to mining legislation and the mining charter had been finalised. The mining sector would have been much bigger than it is and the collections therefore even bigger.”
When looking at specific government interventions, Mavuso said that there is evidence of major blows to tax collection.
“Excise duties were substantially constrained by the alcohol and tobacco bans, with R14.6 billion (-31%) less in collections compared to a year ago.
“The biggest fall (-46%) was in cigarettes, even though several studies showed that cigarette consumption did not fall much during the ban as smokers just switched to illicit economy supply chains.”
“The figures go to prove the point I have made often: we need to get companies in South Africa working better.”
To achieve this, Mavuso said that businesses require a conducive environment – reducing red tape and making it easier to operate.
If companies find it faster and simpler to navigate government bureaucracy, they can become more responsive to opportunities, investing and growing the economy, boosting the taxes they pay as a result, she said.
The list of things to be done is long but starts with some relatively easy interventions, she said. These are:
- Make it easier for companies to generate their own electricity and resolve the chronic energy insecurity that currently bedevils operations. “Let them create plants up to 50MW without a licence.”
- Make it easier to hire skilled foreigners to replace those lost to the skills exodus. “The reality is that many companies can’t find the people they need to operate the expanded capacity they could be creating, so they don’t invest.”
- Get the auctions of spectrum done so that network providers can invest in expanding capacity and increasing broadband availability in the economy.
Mavuso said that the country also needs to bolster its investment in infrastructure, noting that it is investing far less in expanding capacity of the economy through infrastructure than high growth countries do.
The key is to make it easier for the private sector to bring the skills and funding needed to drive public infrastructure investment though the right regulatory amendments, she said.
“This can be done without extra costs to government – indeed it can even release some budgets for greater spending on public services. If we delivered on these structural reforms, which the president has already committed to doing, the figures from SARS would be even more impressive.
“It is time we used policy to drive greater economic activity and generate the revenue government needs.”