The South African Revenue Service (SARS) says it will be “unrelenting” in its efforts to collect the revised tax revenue target of R1 840.8 billion for 2024/25.
Minister of Finance Enoch Godongwana adjusted the gross tax revenue estimate downwards by R22.3bn, from R1 863bn to R1 840.8bn, when he delivered his Medium-Term Budget Policy Statement (MTBPS) yesterday.
As of 30 September, SARS collected gross revenue of R1 070.4bn, yielding net revenue of R846.2bn and R224.3bn in refunds.
Revenue was bolstered by stronger collections from corporate provisional tax and lower-than-expected VAT and personal income tax refunds. This was offset by lower-than-expected collections from customs taxes, PAYE, and the General Fuel Levy.
The areas that were adjusted downward are:
- Lower-than-expected previous year salary adjustments reducing the nominal wage bill estimate from 8.4% in the Budget to 5.5% in the MTBPS.
- Slower growth on capital projects across the government, public corporations, and the private sector, with gross capital formation anticipated to decline from 9.5% to 5.2%.
- A downward revision in the outlook for nominal exports from 5.2% to 3.5%, as well as for nominal imports from 6% to 3.8%.
- Personal income tax is 9.7% lower than forecast. However, the revised forecast of R729bn is still higher than last year’s PAYE revenue of R648bn.
- Revenue from VAT has been revised downwards by 13%, from R476.7bn to R463.8bn. This is due in part to lower imports of solar panels and other components following the end of loadshedding.
SARS said the deficit in revenue collections was partially offset by strong collections in corporate provisional tax – R150.2bn against an expectation of R141.4bn, yielding a surplus of R8.8bn, up by 2.7%, or R3.9bn, from previous year.
The MTBPS forecasts that company income tax collections will be 11.7% higher than expected in February, yielding R313bn instead of R302.7bn.
SARS said the year-on-year contraction in fuel consumption has been “a major issue” for the 2024/25 financial year.
“A substantial amount of 1 333 million litres less fuel was used, which can be attributed to various factors, such as the lower levels of loadshedding and a shift towards alternative energy sources. The reduction in fuel consumption directly impacted the net fuel levy, which has seen a year-on-year contraction of 3.9%, resulting in a shortfall of R7.2bn.”
Although the Budget expected imports to grow by 1.9%, year to date imports have declined by 5.1%. Total trade flows have declined by R39.2bn (-2%) compared to the corresponding period last year. The overall decline in imports is due to low import flows of electrical machinery and vehicles.
Provisional CIT collections of R150.2bn recorded a surplus of R8.8bn (6.2%) and year-on-year growth of R3.9bn (2.7%), mainly because of the finance, electricity, and manufacturing sectors. Collections grew above the required Budget 2024 rate of -3.3%.
“However, the mining sector continues to encounter significant challenges mainly because of volatile commodity prices affecting platinum group metals, coal, and iron ore. The price fluctuations affect the profitability of companies, resulting in downward pressure on corporate provisional payments. The sector has also been facing ongoing issues with transport, logistics, and border crossings, causing delays and increased export costs,” SARS said.
Compliance drive
SARS said it has finalised about 1.3 million more debt cases in 2024/25, or almost 290% more than in the previous year. Despite this, SARS’s debt compliance efforts have yielded lower returns year on year by R9.3bn, which equals a 23.6% year-on-year contraction.
SARS has recorded significant increases in deferred payment arrangements for debt, and requests for the suspension of payments and the issuing of final demands. It said this was evidence of the degree of hardship felt by taxpayers, which is negatively affecting their ability to honour their tax obligations.
SARS said it will continue to focus on voluntary compliance, “ensuring that taxpayers and traders have clarity and certainty regarding their obligations, along with the necessary tools to facilitate easy and straightforward compliance”.
Conversely, SARS will impose significant legal and administrative costs on taxpayers and traders who deliberately fail to meet their obligations.
To date, compliance revenue secured R110.1bn, reflecting a growth of R8.1bn (8%).
SARS said it will continue to intensify its efforts to maintain visibility and reinforce compliance, with plans to invest further in compliance initiatives to close the tax gap by targeting various taxpayer segments.
“In pursuing the attainment of the 2024/25 tax revenue estimate of R1 840.8bn, SARS will be unrelenting in its drive to engender voluntary compliance. Critically in this pursuit, is to ensure that intermediaries charged by law to collect taxes on behalf of SARS pay it over,” said SARS Commissioner Edward Kieswetter.
He said SARS is ready to act against those who wilfully and defiantly ignore their legal obligations by misrepresenting their true economic status. “Those who enable this conduct are equally culpable.”
SARS said it will step up its focus on the following compliance areas:
- Broadening the tax base via leveraging data from third-party sources.
- Registering all taxpayers and traders through predictive modelling.
- Building its detection capability using machine learning models and AI to improve its service to honest taxpayers. This will also be used to detect dishonest taxpayers, improve debt collection, expand the tax base, and deal with tax avoidance.
- Enforcing trade laws against the illicit economy, including those related to tobacco, fuel, and illicit financial flows.
- Prioritising products and strategies that prevent disputes.
Two-pot revenue higher than forecast
Despite the tough operating environment, SARS expects that the start of a cycle of interest rate cuts will spur consumption expenditure. This expansion is expected to drive economic growth and widen the tax base, resulting in buoyant corporate tax and VAT revenues.
Additionally, the introduction of the two-pot retirement system is expected to increase the tax base in the short to medium term.
National Treasury budgeted to earn R5bn in tax from two-pot withdrawals this financial year. Kieswetter said yesterday that R7.2bn had been received in the first two months since the system was introduced on 1 September. About R29bn has been withdrawn from retirement funds so far.
