Tax revenues for 2015/16 were revised down by R7,6 billion as revenue from corporate income taxes softened due to the steep decline in commodity prices, the Treasury announced in its medium term budget policy statement, which sets out spending plans and growth forecasts for the next three years.
“Opportunities to mobilise additional revenue remain limited and will be explored cautiously,” Finance Minister Nhlanhla Nene said. In February Minister Nene raised personal income taxes for the first time in two decades.
Electricity shortages, weak business confidence and low household demand had constrained growth in Africa’s most industrialized economy, with knock-on effects on tax revenue collections.
Treasury said the country’s debt levels would rise, with debt as ratio of GDP seen at 49.4 percent in 2018/19.
Treasury expects a slightly narrower budget deficit of 3,8 percent of GDP for 2015/16 from the 3,9 percent forecast in February, with weak growth denting revenue and the falling currency raising debt costs. The deficit would be wider than previously estimated in three years time, reaching 3 percent for 2017/18.
Minister Nene announced that Treasury was implementing a new fiscal guideline which would link South Africa’s spending ceiling to its long term economic growth projections.
He also announced that the Employment Tax Incentive (ETI) for young work-seekers will be carefully assessed in due course. Nene said there has been active debate around its impact.
He said the ETI continues to attract broad participation. Total claims for the incentive have amounted to R3.9bn since the start of the programme in January 2014, up to the end of July 2015. It has been claimed by over 36 000 employers, or over 250 000 workers.
Nene said the assessment of the incentive will complement research by the Davis Committee on the role of incentives in the corporate tax system.
He also stressed that cooperation with the private sector and an accommodation of small business is a necessity to grow the economy.
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