South African Revenues Exceed Expectations

by Lorys Charalambous, Tax-News.com, Cyprus

06 April 2010

While the global economic downturn has led to steep reductions in South African tax revenue, preliminary figures suggest that that the economy is on the way to recovery as tax collections exceeded expectations in the last quarter of the 2009/10 financial year, which ended on March 31.

In February 2009, total tax revenue was expected to reach nearly ZAR660bn (USD91.1bn) in 2009/10, an increase of ZAR35bn over the outturn in the 2008/09 fiscal year. By the budget in February this year, however, revenue expectations had been reduced by almost ZAR70bn to only ZAR590bn, as the domestic economy contracted over the first three successive quarters of the financial year.

It has now been estimated that the South African Revenue Service (SARS) collected ZAR598.5bn in revenue for whole of the financial year 2009/10, over ZAR8bn more than the above-mentioned revised estimate announced at the time of the February 2010 budget (but still some ZAR26bn, or 4.3%, less than the actual taxes collected in the 2008/09 fiscal year).

The figures suggest that the South African economy appears to be on the way to recovery. However, SARS had put in place special measures, from August last year, which have paid dividends in compliance. Special revenue raising initiatives by SARS, including the implementation of sterner administrative penalties for those with outstanding tax returns, are said to have contributed up to ZAR24bn in additional revenue for the fiscal year.

Despite one million job losses in 2009, there was a 4.8% annual growth in personal income tax (the largest contributor to revenues), but company income taxes remained severely affected by the economic decline, decreasing by over 18%.

As was to be expected, revenues from value added tax (VAT) declined on an annual basis by some 4%, mainly as a result of reduced domestic consumption. VAT collections on imports were significantly lower than the previous year, also due to declining capital investment.

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