KEY POINTS
- SARS faces a $1.25 billion shortfall in tax collections for 2024, as revealed in the MTBPS.
- Individual tax revenues underperformed due to lower-than-expected wage growth, impacting overall collections significantly.
- Improved Eskom performance and decreased imports contributed to decreased diesel levies and lower VAT revenue.
South African Revenue Service (SARS) is grappling with a substantial tax collection shortfall, expected to reach R22.3 billion ($1.25 billion) less than the February Budget forecasts.
This alarming revelation was highlighted in Finance Minister Enoch Godongwana’s recent Medium Term Budget Policy Statement (MTBPS). As the year draws to a close, prospects for recovery seem dim.
SARS tax shortfall: economic factors drive deficit
In an interview on The Money Show, SARS Commissioner Edward Kieswetter identified three key factors behind the R22.3 billion($1.25 billion) tax shortfall. He noted, “There’s a direct correlation between the economy and tax collection,” highlighting deviations from economic assumptions.
First, individual tax collections are underperforming by R12 billion($680.28 million) due to wage growth falling to 5.4 percent instead of the anticipated 8.4 percent, leading to lower income tax revenues.
Second, while Eskom’s improved performance has reduced diesel usage by 11 percent due to rooftop solar installations, it has also caused an R8.4 billion($476.19 million) decline in diesel levies, worsening the deficit.
Finally, lower-than-expected imports contributed significantly to the shortfall; imports were projected to grow by 1.9 percent, but the actual figures show a 3.7 percent decline, resulting in reduced VAT and customs revenues.
Kieswetter’s leadership at SARS is under increasing scrutiny
These factors contributed to a R15.7 billion($889.90 million) deficit, partially offset by better-than-expected corporate tax performance in smaller businesses. SARS expects a tax boost from the new two-pot retirement system, processing over 1.6 million applications with an anticipated R7.26 billion($411.51 million) in tax from R29 billion($1.64 billion) withdrawn.
However, Kieswetter warned that ongoing economic challenges may hinder recovery in diesel and individual tax revenues. While delayed wage negotiations and increased consumption could improve tax collections, they likely won’t cover the shortfall. “That’s why the minister settled on R22 billion($1.25 billion) below the February estimate,” Kieswetter stated.
He also noted faltering debt collection efforts, with more individuals requesting repayment arrangements, reflecting widespread financial hardship that limits the state’s ability to recover owed debts. As scrutiny of his leadership intensifies, Kieswetter’s position as SARS commissioner hangs in the balance.
