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Deloitte Medium-Term Budget Policy Statement (MTBPS) Commentary 2019

Building an inclusive economy - Perspectives on the 2019 Medium-Term Budget Policy Statement

JOHANNESBURG, South Africa, 29 October 2019 - Finance Minister Tito Mboweni has a tough task ahead of him as he seeks to present this year’s Medium-Term Budget Policy Statement (MTBPS). Against a backdrop of inter alia weak economic growth and state-owned enterprise (SOE) bailouts, the MTBPS could provide much needed clarity on how South Africa’s proposed economic growth strategy will be progressed.

This is according to Delia Ndlovu, Managing Director, Tax & Legal, Deloitte Africa, who cautions that the bailouts, a possible Moody’s downgrade and the impact it will have on our debt repayments, as well as a less than rosy global economic outlook and the performance of the dollar, all create barriers to accelerating inclusive growth (as per the 2018 MTBPS objectives).

August 2019 National Treasury data indicated that revenue collections were lagging despite tax hikes (in the form of fiscal drag), increased sin taxes, the implementation of the carbon tax and sugar taxes, as well as a new fuel tax.  A record shortfall of up to R60 billion is forecast for the tax year ending March 2020, which will bring the accumulated tax undershot over the last six tax years to over R215 billion.

Adding to Treasury’s woes is the fact that earlier expectations that GDP growth in 2019 was expected to rise to 1.5 %, and then strengthen moderately to 2.1% in 2021, now appear to have been over-optimistic. The International Monetary Fund’s  October 2019 World Economic Outlook data release expects real GDP growth this year to be as low as 0.7%, thus sub 1% economic growth for a second year in a row.

Observers will want to understand how these negative factors, including the expected revenue collections shortfall, will impact how Minister Mboweni prioritises Treasury’s fiscal spend so that it clarifies how the growth strategy will be structured.

While economic growth is a complex and multifaceted process, Deloitte believes data processing and analysis can greatly improve revenue collection.

Digitising tax collection

“With technological advancements, SARS has the opportunity to use digital innovation to change how it improves efficiency within tax collection processes,” adds Ndlovu, pointing out that tax authorities around the world, including those in developing economies like Brazil, appear to be leveraging new technologies in order to leapfrog into modern administrations. Furthermore Revenue Authorities across Africa, including SARS, are seriously considering overhauling their IT infrastructure to have a single view of the taxpayer across all tax types in order to enforce compliance and to broaden their tax bases.

“With SARS in the process of strengthening its IT team and systems, we hope that the upcoming policy statement will set out alternative avenues for increasing tax collections, such as digitally enhancing SARS’ tax collection processes.” says Ndlovu.

Ndlovu believes that important steps have been taken to improve the revenue service’s efficiency, with its relaunch recently of the Large Business Centre (LBC) – a unit focused on revenue collection from large corporate companies.

Additionally, Edward Kieswetter, who was appointed as the new Commissioner in April this year, said recently that SARS is making “substantial progress” in implementing the recommendations that came out of the Commission of Inquiry into tax administration and governance.

Deloitte Africa Post-MTBPS Infographic

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