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By Moneyweb

Moneyweb: Journalists


Lower mining revenues and load shedding hit the taxman

Sars Deputy Commissioner Johnstone Makhubu reveals tax woes and economic challenges at SA's Tax Indaba.


Deputy commissioner of the South African Revenue Service (Sars) Johnstone Makhubu says tax revenue from the mining sector alone was down R22 billion in June this year, while load shedding is expected to have a R60 billion negative effect on tax collections.

Speaking at the opening of the 10th Tax Indaba in Sandton, Makhubu added that Sars has also seen a sharp increase of around 14% in value- added tax (Vat) refunds. This is mainly due to an increase in imports and the effect of higher inflation on input costs.

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The conference heard that headwinds that beset the South African economy before and during the Covid-19 pandemic have not subsided. The country’s growth projections remain poor, negatively affecting confidence levels, employment, poverty and equality.

Major risks that exacerbate the decline in economic growth are South Africa’s electricity crisis, lack of demand for manufactured goods, erratic global activities and overregulation. This is translating into a worrying slowdown in revenue collections from the main contributors such as the mining and manufacturing sectors.

Surviving taxation

The theme of the Indaba, hosted by the South African Institute of Taxation (Sait), is surviving taxation in a no-growth environment.

The economic growth rate has been adjusted downwards from 0.9% to around 0.3%, yet the target for revenue collection growth is between 4% and 6%.

Sars has been able to achieve revenue collection growth of 2.6%.

Sait CEO Keith Engel says this is an indication of the pressure on the fiscus. A tax system can only react to what is happening in the business environment. “It is impossible to tax yourself into growth”.

The fundamental issues impacting South Africa’s business environment are the lack of basic services such as the provision of water, electricity and transport, and overregulation.

The benefits of reliable and affordable electricity, sufficient water and working railways and ports that businesses enjoyed 20 years ago are almost gone.

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Distrust of private sector

Government’s distrust of the private sector has led to overregulation, and it now wants to be involved in everything – but businesses need to be able to function freely and not be forced to focus on compliance instead of growing their operations.

Overregulation is killing the opportunities that still present themselves in the economy. Efforts to change this are “ever so slow” and there seems to be resistance to change, says Engel.

Martin Kingston, executive chair at Rothschild & Co and chair of the steering committee of Business for South Africa, believes a good example of overregulation is the national health insurance scheme.

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The cost to the fiscus is most likely going to be more than R500 billion a year. The ability of the public sector to implement this massive project efficiently will most probably blow any fiscal headroom out of the water.

South Africa also runs the risk of further alienating private sector investment. Currently around 88% of all jobs are created by the private sector.

“Growth is going to come from fixed investments,” says Kingston. “That is a function of confidence which reflects certainty, predictability and an appropriate and an attractive investment environment.”

Three focus areas

Government has already identified three main focus areas that need attention in order to achieve a better growth environment: the energy crisis, transport and logistics, and crime and corruption.

Energy and transport contribute between 3% and 6% to GDP, but also represent the areas where corruption is rife. If South Africa does not confront these issues, GDP will continue to contract, increasing the strain on the fiscus and preventing the private sector from making the contribution it should, warns Kingston.

Another risk is the increased political rhetoric in the run-up to the general elections next year. The voting public must be encouraged to vote for political parties with policies that can be implemented to address our challenges, Kingston notes.

Taking difficult decisions on the implementation of structural changes, over and above the ones needed to address the challenges around electricity, transport and crime, require political will.

“Until we get our arms around that we are not going to boost confidence levels [and] will not get the investments required to drive GDP growth and collect the significant tax revenues currently anticipated,” says Kingston.

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More manufacturing

The manufacturing sector contributes around 11% to GDP and employs 1.7 million people.

During the 2021 tax year this sector’s contribution to company income tax (CIT) amounted to almost R24 billion or 15% of all CIT collections, says Philippa Rodseth, executive director of the Manufacturing Circle.

However, many manufacturers are operating below maximum capacity. South Africa needs increased demand for manufactured goods, enabling manufacturers to run at maximum capacity. The spin-off is increased shifts, overtime and jobs.

“If we increase employment in the manufacturing sector … the employees’ payroll contributions to the fiscus in addition to increased economic activity will be more beneficial than the contribution of social grants,” says Rodseth.

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Make noise

Engel believes there are growth opportunities, but there are also rising risks that should not be underestimated.

The private sector must be politically active, he says.

“If you want political change you need to push where the action is. I think just ‘staying in safe circles’ is a mistake.”

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This article is republished from Moneyweb n under a Creative Commons licence. Read the original article.

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