By Shaun Jacobs.
The National Treasury is expecting the government to collect R19.7 billion more in taxes than initially forecasted in the Budget Speech in May.
This is crucial for the country’s efforts to resolve its deepening financial crisis, with debt ballooning from 26% as a share of GDP in 2008/09 to over 76% currently.
The additional tax revenue will result in the government posting a wider primary budget surplus in the current financial year and a smaller full budget deficit.
A primary budget surplus means the government is collecting more tax revenue than it is spending on its operations. This excludes debt-servicing costs, which are accounted as part of the full budget deficit.
Finance Minister Enoch Godongwana explained that a primary budget surplus is crucial to stabilising the country’s debt load as it means the government is not adding to its burden.
Over time, this primary surplus should enable the state to begin paying down its debt and free up more spending in productive sectors of the economy.
Godongwana said the better-than-expected tax revenue of R19.7 billion is due to stronger household spending, which has boosted VAT collections, and improvements in corporate tax receipts as well as dividend tax.
SARS has also played its part in collecting additional revenue by narrowing South Africa’s tax gap, which is estimated to be R800 billion.
This is the gap between the amount of tax levied by SARS in South Africa and the amount actually paid by taxpayers.
To help boost tax revenue further, SARS has clamped down on VAT refunds and strengthened its debt collection capacity.
Godongwana gave SARS an additional R4 billion in the Budget Speech to further enhance its collection capabilities in the coming years.
This is expected to eliminate the need to increase tax rates, with increased revenue coming from enhanced compliance and debt collection. The only way South Africa’s tax revenue can sustainably rise over the long run, without rate increases, is through faster economic growth.
“We will continue to monitor SARS’s revenue performance for the remainder of the year. This assessment will inform whether the R20 billion in additional tax increases for the 2026 Budget, as earlier proposed, can be withdrawn, “Godongwana said.
The minister said a final decision will be announced when the 2026 Budget is announced in February next year.