Home Accounting and Auditing With the national budget a week away, SA faces a fiscal cliff

With the national budget a week away, SA faces a fiscal cliff


David Ansara, chief operating officer at the Centre for Risk Analysis, provides some sobering analysis of SA’s fiscal position. David will be representing the SA Institute of Business Accountants at the Budget Review Trilogy taking place at 2pm on Wednesday 26 February 2020 at FNB Portside in Cape Town. You can book here.

Events are also planned for Durban on Thursday 27th February and Johannesburg on Friday 28th February (details below). These are presentations you do not want to miss to get incisive analysis of the Budget and what it means for the country and the accounting profession.

In a pre-budget analysis, Ansara highlights the predicament the country faces as it enters what appears to be a sustained low-growth cycle.

For example, only 1.1 million people who earn over R500,000 a year contribute 67.6% of all individual taxes paid. A mere 6,664 of these or 0.1% earn above R5 million, while paying 7.9% of individual tax assessed.

There are just 706 companies with taxable income greater than R100 million. They account for just 0.09% of companies assessed for tax, but account for 62.7% of corporate tax assessed.

That being the case, finance minister Tito Mboweni face a daunting task in keeping this ship afloat. In 2018/19 total tax revenue amounted to R1.3 trillion — 26.2% of the country’s GDP of R4.9 trillion.

80% of tax revenue comes from personal income tax, corporate income tax and VAT. The Skills Development Levy, the Fuel Levy, Customs and Excise duties and other tolls.

“For almost 40 years, South Africa has been dogged by consistent budget deficits (expenditure outstripping revenue), which show no sign of letting up in the near future,” writes Ansara.

SA’s fiscal position remains weak, and is steadily deteriorating with the fiscal deficit expected to widen 6.5% by 2020/21.

Not all registered taxpayers are liable to submit tax returns. So, even though the register of individual taxpayers has grown over the years, the number of people expected to submit returns is relatively stagnant, and tax revenue collected has remained below expectation. In March 2018, for instance, there were some 21.1 million registered taxpayers. However, only 6.6 million were classified as expected taxpayers and 4.9 million had been assessed (this figure is likely to rise as assessments continue).

Middle class and high income individuals carry the heaviest burden. Only 1.1 million or 16.6% of assessed individual taxpayers earn above R500 000.However, this category of taxpayers contributes 67.6% to tax assessed. The wealthy, who earn above R5 million, constitute a mere 6 664 people or 0.1% of individual taxpayers, while paying 7.9% of tax assessed.

Similarly, the collection of revenue from corporate taxpayers is under significant strain. Companies expected to submit returns fell in number from 977 149 in 2015 to 903 320 in 2018.The number of corporate taxpayers assessed declined from 875 366 to 572 335 over that period (although assessments are still ongoing).Companies with taxable income greater than R100 million amounted to 706 in number or 0.09% of companies assessed for tax in 2017, but accounted for 62.7% of tax assessed.

The tertiary sector — combining wholesale/retail, transport, finance and other related sectors — contributes two thirds (67.3%) to corporate tax assessed, so any downsizing in this sector would have an adverse impact on revenue collection.

“The Minister of Finance, Tito Mboweni, faces a dilemma ahead of next month’s budget speech. The ratio of expenditure to GDP is at an all-time high and looks set to increase further. Since growth forecasts remain low, and austerity measures are unlikely to be implemented, National Treasury will probably seek to increase taxes, among them PIT, VAT, ‘sin’ taxes and others.

“However, South Africa’s PIT and CIT rates are already notably high in comparison to selected countries, and raising them further will constrain consumer expenditure and levels of corporate economic activity. Although the VAT rate compares fairly at a global level, and chances of it being hiked are higher, this would be a politically damaging move.

“In August 2019, Mr Mboweni released a policy paper outlining far-reaching proposals for structural reform. Without implementation of such policies, economic growth will remain below 1% and South Africa will stay stuck in a fiscal trap of its own design.”

— David Ansara and Thuthukani Ndebele (Centre for Risk Analysis)

The Budget Review events can be booked here.

Cape Town Budget Trilogy Review:

event: Wednesday, 26 February 2020


FNB Portside

Durban Budget Trilogy Review:

Thursday, 27 February 2020


Coastlands Umhlanga, African Sky Venue

Johannesburg Budget Trilogy Review:

Friday, 28 February 2020


The Wanderer’s Club, Illovo