The South African economy, which grew by an estimated 0.5 per cent in 2016, was projected to grow by 1.3% in 2017, 2% in 2018 as economic conditions strengthen and would reach 2.2% by 2019. Unfortunately, these growth projections stand at risk.
Factors supporting the forecast include marginally higher global growth, stabilising commodity prices, greater reliability of the electricity network, more favourable weather conditions, recovering business and consumer confidence, and improved labour relations. But with the current poor performance of major sectors of the economy there is a likelihood that this performance would restrain tax revenues, Finance Minister Malusi Gigaba said on Monday.
Unlike the previous year’s tax of 1.14 trillion rand, this year South Africa aims to collect just under 1.3 trillion rand ($98 billion) in taxes during the 2017/18 fiscal year that ends in March.
Individual income tax or personal income tax in Africa’s most industrialised economy range from 18% for income below R188,000 per annum to 41% for amounts over R701,300. Anyone earning less than the tax threshold of R75,000 (for persons below age 65) pays no income tax.
Meanwhile, in February former Finance Minister Pravin Gordhan announced increases in taxes for top income brackets in a bid to reduce the budget deficit to 2.6 percent of national output by 2019/20 from the current 3.4 percent.
In a tax conference, Gigaba noted, “Our current level of growth is simply insufficient and not enough. We cannot be complacent about the 2.5% second quarter growth that got us out of technical recession,”
Gross domestic product contracted 0.6% for the first quarter of 2017, an indication that the country has entered into a technical recession, and the2.5% expansion in the 3months to the end of June followed contractions of 0.6% in the first quarter an 0.3% in the fourth quarter of 2016.
Analysts predict a budget shortfall of close to 50 billion rand, raising the risk of credit downgrades deeper into junk territory as growth and revenues are expected to underperform.
According to the tax Commissioner, Tom Moyane, “The 2.5-percent growth does not provide us with a glimmer of hope … the 1.265-trillion target for this year will be a stretch. It will be difficult in these sluggish economic conditions,” as he warned that the revenue service collection target would be difficult to achieve in current conditions.