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South Africa Sees Increased Annual Tax Revenues

by Lorys Charalambous,, Cyprus

04 April 2011

The preliminary outcome of tax collection by the South African Revenue Service (SARS) for the 2010/11 fiscal year shows a modest recovery in revenue, indicating that the country’s economy is also regaining its growth momentum.

By the end of March this year, SARS had collected ZAR674.2bn (USD100.6bn) in tax revenue, which represents a nominal growth of 12.6%, or ZAR75.6bn more than the previous fiscal year. The revenue target for 2011/12 is ZAR741.6bn.

A year-on-year growth of 10.6% in personal income tax was said to be driven by wage settlements in excess of inflation, with the main contributions to that growth arising out of the finance, and public administration and agencies sectors.

On the other hand, corporate income tax collections declined by 1.1% showing that they continue to lag, largely due to corporate returns in South Africa being submitted 12 – 18 months after their financial year-end. However, there are positive signs for future corporate income tax collections due to the recovery of demand in the economy and indications of improvements in business profitability.

Additional details of tax collected to date also show value added tax (VAT) collections improving by 24.5%, due mainly to the improved domestic demand, increased imports of vehicles, automotive parts and machinery. In addition, SARS has recently introduced stricter validation rules to eliminate increasing abuse in VAT refunds.

This preliminary revenue outcome increases the tax-to-gross domestic product (GDP) ratio to 25.3% for 2010/11. However, prior to the recession, the tax-to-GDP was 27.6% in 2007/08.

Combined the higher than anticipated revenue with a public spending outcome of ZAR891.3bn (0.2% of GDP lower than anticipated in the 2011 Budget), the preliminary budget deficit is now 5% of GDP – some 0.3% lower than was expected in the 2011 Budget.

SARS has pointed out that GDP growth in itself is not a guarantee for higher revenue collection. It said that “South Africans continue to improve their compliance with approximately 10% more individual taxpayers filing their tax returns for this tax year compared to the previous year.”

It also attributed the improved revenue performance for 2010/11 to SARS’s administrative reforms and its modernisation programme. “Significantly more taxpayers are becoming aware that we have improved our capability to detect non-compliance and non-disclosure through improved third party data verification and the pre-population of taxpayer data on returns,” it added.

Furthermore, SARS has seen a significant shift from taxpayers towards e-channels when submitting returns. The shift to electronic filing continued in the last tax season when 96% of all returns were submitted electronically.

However, there were said to remain worrying trends about the levels of compliance amongst certain segments of taxpayers, particularly high income earners. “There are still too many instances of fraud and abuse of the tax system and impermissible methods some businesses use to manipulate their cash flow position and minimize their tax liabilities,” SARS disclosed. “SARS has become aware about these schemes and SARS will improve its ability to act more decisively against a blatant disregard for tax and customs laws through the under-declaration of income.”

TAGS: South Africa | compliance | tax | business | value added tax (VAT) | tax compliance | corporation tax | revenue statistics | individual income tax | Africa

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