The Current SA Tax base and economic climate pose risks and opportunities for government finance.
Currently, the South African government gets a huge proportion of its revenue from taxes. For example, in the 2014/2015 financial year, 87% of the 1, 2 trillion government revenue came from taxes alone. The economy is in a technical recession and unemployment is at its highest levels since the 2008/09 downturn with over 9,5million people unemployed. Indications from SARS are that it will be challenging to meet their tax collection targets. This has serious implication for government financing which depends heavily on tax collection.
Sources of South African Government Revenue 2014/15
Data from Stats SA, 2018
SARS will not collect the planned revenue target for the 2018/19 financial year given the economic circumstances.
Data from stats SA further indicate that companies in South Africa are making less profit due to increases in operating cost including employee costs and other costs. A lower profit means lower tax payable by companies to SARS.
The current unemployment rates stand at over 27% with over 9,5 million people unemployed. High unemployment rates directly result in lower personal income tax which makes up the largest proportion of tax revenue. Companies continue to shed jobs because of the economic climate and this makes the already bad situation worst.
The increase in VAT last year from 14% to 15%, was aimed at raising more taxes for the government and it might not realize the intended objectives in the current economic climate.
Given this reality, the minister of finance needs to think out of the box as he prepares for the medium term budget speech later this month.
He needs to think about how SA get the possible maximum tax from the current tax base in an efficient manner?
How do we still raise sufficient taxes to finance government growing expenditure bill and increasing public debts?
What are the opportunities for raising tax collection within the current economic climate?
What are the possibilities of growing the economy and thus increasing the tax base?
These and many more questions need to be assessed and analyses carefully as South Africa battles to raise taxes under circumstances where the tax base is narrow, unemployment is high, company profits are decreasing and companies continue to shed jobs. Yet government revenue requires over the past few years have increased with increases in the public wage bill, the need for finances for free higher education, the need for finances for an increasing social wage bill.