SA’s tax collection falls significantly

SA’s gross tax revenue collection fell significantly in June, by -7.5% y/y. This was driven by a drop in corporate income tax amid lower mining profits from weaker commodity prices. 

National Treasury released its critical June 2023 statement of revenue, expenditure and borrowing. This month’s release is particularly important, as most mining companies pay their taxes in June and December. It gives a preliminary idea of the impact of lower commodity prices (and thus weaker mining profits) this year on government tax revenue collection. The data showed that South African gross tax revenues for June were R194.1 billion, accounting for 10.9% of the budgeted R1.79 trillion gross tax revenues for 2023/24 (based on the 2023 Budget). Given the volatility of the data and the fact that it is not seasonally adjusted, monthly movements tend to be erratic. 

On an annual basis, gross tax revenue collection fell by a significant -7.5% y/y in June, much lower than the +10.2% y/y growth recorded in May. The drop comes as mining profits are falling due to lower commodity prices, impacting mining tax collection during the month. Positively, however, first quarter revenue collection this year is only 1.4% lower than in Q1 2022, implying that the impact was partly offset by better collection in other areas. This growth is well below the 6% annual growth required to achieve the budgeted tax revenue for 2023/24. 

Taxes on income & profits; and taxes on goods & services continued to drive movements in total tax revenues, making up a combined 94.9% of total tax collected in June. Taxes on income & profits were disappointing, decreasing by -13% y/y in June, down from +9.7% y/y in May and the lowest growth since September 2020. In contrast, there was solid growth in taxes collected on goods & services. It was +8.6% y/y in June, although this was down from +11.2% y/y in May.

As pointed out above, a key driver of the fall in income & profits tax collection in June was the significant drop in corporate tax collection, which fell by -24% y/y compared with +4.1% y/y in May. Commodity prices have moderated since their peak in June 2022, amid slowing global growth and a disappointing rebound in Chinese economic activity. This has negatively affected tax collection from the mining sector this year, driving down overall corporate tax collection from its record levels in the previous financial year. Positively, however, compared with June 2019, corporate tax collection was still quite robust, around 52.3% higher. However, the rate of collection is well below the -1.8% fall in corporate taxes that government projected in the 2023 Budget. In contrast, the growth in personal income tax (PIT) collection was strong, up 13.6% y/y, after growing by 10.6% y/y in May and 4.9% y/y in April. This is above the 6.7% growth needed for 2023/24 to achieve the budgeted collection. 

Despite the solid growth in taxes on goods & services, VAT collection was stagnant in June, with net VAT rising by only 0.2% y/y, down from 9% y/y in May. An important contributor to this was a significant rise in VAT refunds in June, increasing by 27.9% y/y after increasing by 15.9% y/y in May. This is despite government’s expectation that VAT refunds would decrease in 2022/23, given strong growth last year. Overall, VAT collection poses one of the biggest risks to government’s tax revenue projections. National Treasury is unlikely to achieve its ambitious growth target of 11.6% for VAT receipts because of the difficult current macroeconomic environment. 

Government’s main budget expenditure rose by 10.4% y/y in June, following an increase of 9.1% y/y in May and 10.2% y/y in April. The budget surplus was R36.7 billion in June, a 50.5% y/y drop, due to lower tax revenue collection. This was, however, better than market expectations for a budget surplus of R18.5 billion (Bloomberg).

The disappointing performance in tax collection in June 2023 highlights the significant risk that the normalisation in mining taxes is having on government finances. It appears government may have been too ambitious in its Budget 2023 tax collection estimates, especially given the low domestic growth expectations, weak global growth environment and the fall in commodity prices so far this year. It is therefore vital for government to more efficiently and effectively implement economic reforms to help boost economic activity and broaden the tax base.