South Africa’s technical recession poses a risk to 2018’s tax revenues, Finance Minister Nhlanhla Nene told a tax indaba on Monday.
Last week Statistics South Africa announced that South Africa had slipped into its first technical recession since 2009 following two negative quarters of economic growth.
“There is now an additional downside risk to tax revenue projected at the beginning of the year because of the contraction in the economy in the first six months of the calendar year,” Nene told a meeting of tax practitioners in Sandton.
“Fixing our economy to ensure it grows faster and in a more sustainable manner is, therefore, critical. Faster economic growth simply means we will have more revenue to collect.”
Nene said it would be difficult for government to implement ambitious social security programmes — such as National Health Insurance — without growing tax revenues.
The South African Revenue Service (Sars) has experienced two successive years of tax shortfalls: R30-billion in 2016/17 and R49-billion in 2017/2018. The finance minister said that, while some of these shortfalls are due to a struggling economy, the state “cannot ignore the potential impact of a reduction in the effectiveness of tax administration”.
“Tax avoidance and tax evasion will be on the rise in any economy which is growing more slowly and where taxes have been increased,” he said. “A strong, capable and effective revenue authority must be there to limit those activities and make sure the correct amount of revenue continues to be collected.”
Corporate governance and the revenue collection abilities of Sars are currently being investigated by the Nugent Commission of Inquiry. Nene appealed to the audience to share information with the inquiry. In Nene’s view, the commission is an important step towards rebuilding trust between government and taxpayers.
He also directly addressed employees at Sars, who during testimony at the inquiry had repeatedly highlighted how a culture of fear and suspicion eroded moral under now suspended commissioner Tom Moyane.
“I salute Sars employees. Thank you for sticking it out to fulfil a monumentally important task for our country.” — Fin24