Revenue Service announces preliminary outcome of revenue collections for 2016/17
3 Apr 2017
In its humbling role of serving the nation, South African Revenue Service (SARS) has remained steadfast, once again, delivering on its core mandate; that of collecting all revenue due to the fiscus.
For the second year in a row, SARS broke the Trillion Rand mark collecting, in gross terms, R1.367 trillion. The preliminary outcome for the 2016/17 financial year, net of refunds of R222.4 billion, is therefore R1.144 trillion.
This outcome is fractionally (only R300 000) above the revised estimate as announced in the 2017 Budget.
For the 2016/17 financial year, net revenue grew by 7.0% contrasted with a growth in refunds of 9.5% year on year. As customary, the preliminary result announced today will be subjected to detailed financial reconciliation which, in the past, was of the order of approximately R150million, an insignificant 0.01% potential adjustment to the final outcome either way.
With global economic growth the 2016 calendar year has been characterised by subdued growth with global growth easing to 3.1% in 2016, from 3.2% in 2015. World trade remained sluggish due to:
Falling oil and other primary commodities prices;
Strong fluctuations in exchange rates of especially developing countries;
Economic slowdown in China;
Recessions in developing economies, including some of South Africa’s major trading partners; and
Financial volatility driven by divergent monetary policies in developed countries.
These global trends impacted negatively on South Africa’s economy. Real Gross Domestic Product (GDP) growth for 2016 was revised down from 0.9% in February 2016, to 0.5% in the February 2017 budget (Recently StatsSA published the official view for real GDP growth in 2016 at 0.3% and nominal growth of 7.1%).
This resulted in a concomitant downward revision in the Revenue estimate from R1.175 trillion in February 2016 to R1.144 trillion in February 2017, a downward revision of R30 billion.
This is not the first time that such a large downward revision in revenue estimates was effected. In the 2009/10 financial year, the revenue estimate was revised downwards by about R60bn, similarly in line with a decline in GDP outlook then.
This extra-ordinary achievement by SARS during tough economic times, in which trade in real terms contracted and a shrinking wage bill, was made possible by the mobilization of the entire SARS resource base. In the month of March 2017 this relentless focus on revenue realisation resulted in monthly revenue growing by above 15%.
This lifted overall growth, dragged down by very poor performances of Import taxes and Corporate Income Tax from small and medium companies in February, from 6.0% to the required 7.0% by the end of March 2017.
(Year on year growth for February 2017 was disappointing at 1.7 %.) The efficiency of SARS is reflected in the high extraction rated, characterised by a Tax to GDP ratio of 26%; a ratio normally achieved during boom economic times.
SARS, by meeting these challenging revenue estimates, continues to provide South Africa with the requisite fiscal space to curtail growth in sovereign debt and sustain the stability of the overall fiscal framework of South Africa. The strong collections in the final week of March further assisted government’s cashflow requirements during a critical period.
This extra-ordinary revenue effort by SARS bears testament to the resilience of the remarkable men and women of SARS. Our employees continue to demonstrate utmost professionalism and dedication to the task at hand during the challenging period that 2016 represented.
It also speaks warmly to the enduring tax citizenship of the South African population, this despite the tough economic conditions.
Looking ahead, SARS expect the domestic economy to improve to GDP growth levels of about 1.2% based on emerging trends which include:
Commodity prices which have rebounded;
The relatively stable international Rand exchange rate which recovered from its rapid depreciation last year;
Production stoppages associated with industrial disputes have been comparatively low; and
Heavy rainfall realised in the past months in South Africa bringing relief to the agricultural sector.
These green shoots will assist SARS in the revenue collection drive towards the attainment of the printed estimate for the 2017/18 financial year of R1.266 trillion, a required uplift of 10.5% over the current year.
It should be cautioned that this strong revenue growth outlook for the next financial year was developed when a more rapid economic recovery, than what is currently the case, was anticipated.
Tax Highlights
The Revenue performance of 2016/17 was characterised by key shifts in the revenue portfolio, Personal Income Tax, for long being the mainstay of revenue, declined from levels exceeding 12% to below 9%. This was precipitated by lower than usual wage settlements, subdued bonus payments as well as job shedding.
Import taxes were adversely stunted by declining import levels of goods that attracted Value Added Tax (VAT) and Duties. Import VAT declined by 1.3% and Customs Duties by 1.2%. Dividends Tax more than doubled in March 2017 as many companies forestalled rate changes announced in the February 2017 Budget, yielding a surplus of R4.4bn against the March 2017 estimate for this tax.
Tax type analysis
Personal Income Tax (PIT), Corporate Income Tax (CIT) and VAT along with Customs and Excise, in aggregate remained the largest sources of tax revenue and represented about 94.5% of total tax revenue collections. The largest contributor was PIT, which accounted for 37.2% of total revenue, followed by net VAT contributing 25.2% and CIT collections 18.1%. Customs and Excise collections contributed 27.0% to collections.
Key highlights from the revenue collection season were:
PIT collections of R426.0bn were higher against the previous year by R36.7bn (9.4%) but lower than the estimate by R0.9bn (-0.2%), mainly due to PAYE (Employees’ tax) payments. The growth in PAYE at 9.2% was slightly lower than the growth of 9.4% that was required to reach the revised estimate. Lower wage settlements, containment of bonus payments, job losses and increasing unemployment and inflation contributed to the deficit against estimate.
Net VAT, which consists of Domestic VAT, Import VAT and VAT refunds, did not reach the same level of growth as was achieved in the prior year. The Domestic VAT growth was supressed by modest growth in household expenditure. The growth in net VAT was reduced by Import VAT which recorded a contraction due to subdued growth in imports. VAT refunds added to the down side as they grew significantly, driven by payments to the wholesale and retail trade, finance as well as the manufacturing sectors. Domestic VAT collections of R321.1bn were higher against estimate and prior year by R1.3bn (0.4%) and R23.6bn (7.9%) respectively. Import VAT collections of R148.8bn were below estimate and prior year by R1.7bn (1.1%) and R1.9bn (1.3%) respectively, mainly due to contractions in imports of electronic goods, vehicles and machinery. VAT refunds of R181.4bn were R1.2bn (0.7%) and R14.4bn (8.6%) higher than the estimate and prior year respectively. VAT refunds grew by 8.6% in 2016/17 compared to 3.0% in 2015/16. The finance; mining and quarrying; wholesale and retail trade; as well as manufacturing sectors received the largest amount of VAT refunds.
CIT collections of R207.0bn were slightly lower against estimate by R0.5bn (0.3%) and significantly higher against prior year by R13.6bn (7.0%). The growth against prior year is mainly due to higher provisional tax payments from the SMME segment, which recorded growth of 11.4%, whereas growth of 4.5% from large corporates was recorded. Increases in CIT collections were recorded largely for the mining and quarrying; finance as well as wholesale and retail trade sectors.
Customs duties collections of R45.7bn were below estimate and prior year by R1.8bn (3.8%) and R0.5bn (1.2%), respectively, mainly due to contractions in imports of vehicles and clothing.
Notably, the Dividend Tax (DT)/ Secondary Tax on Companies (STC) of R31.1bn were significantly higher both against estimate and prior year by R5.4bn (21.0%) and R7.2bn (30.0%) respectively. The growth against 2015/16 was mainly driven by companies distributing profits (current and retained) to shareholders rather than re-investing.
A substantial number of dividend taxpayers also paid dividends in the month of March 2017. The increase in the DT rate from 15% to 20%, effective on the 22nd February 2017 also contributed in the growth in DT collections. The rate is applicable to any dividends declared but not yet paid on the 22nd February 2017.
Sector analysis
The financial services sector remains the largest contributor to total net revenue at 49.7%, which reflects a year-on-year growth of 7.4% marginally lower than the growth reflected in 2015/16, followed by the community and social services; and manufacturing sectors with contributions of 15.3% and 10.5% respectively.
The mining sector, contributing 1.2% (mining receives R35bn in VAT Refunds and R2.3bn in Diesel Refunds as a result of the zero rating of all exports inclusive of commodities) to the overall revenue basket, reflected a significant recovery in its growth rate (257.9% vs. a contraction of 41.3% in the prior year). Collections from the mining sector benefited largely from improved commodity prices.
Refund analysis
In aggregate SARS paid out R222.4 billion in refunds. A total of R23.0 billion was paid in PIT refunds, reflecting a 10.7% increase on prior year. CIT refunds totalled R13.0bn, representing about R2.2bn (20.7%) increase in pay outs compared to prior year .VAT Refunds for the year totalled R181.4 billion, exceeding estimate by R1.2bn, and reflecting an increase of R14.4 billion (8.6%) on PY.
Growth was driven by the R9.3 billion (13.2%) increase in payments to the small and medium vendors, while large vendors received R5.0bn (5.2%) more refunds than in the prior year.
On a sector basis vehicle manufacturers drove growth in refunds. The wholesale and retail trade sector as well as manufacturers received higher refunds as a result of paying more Import VAT, which translated to higher VAT refunds.
The finance sector also received substantial refunds mainly because of holding companies claiming high input costs while the mining and quarrying sector benefitted from zero-rated exports.
Diesel Refunds on the other hand reflect a decline of R4.2bn (45.8%) compared to prior year due to the lower reliance on diesel for electricity generation.
Special Revenue Programme implemented by SARS
The special revenue programme saw the establishment of project teams directed and governed by both national and regional revenue steering committees championed by senior executives. These revenue teams identified potential tax leakages, unexplored and unrealised revenue sources and ensured collections of all revenue due within the 2016/17 financial year.
An amount of approximately R150.0 billion was secured through these initiatives, which includes approximately R20 billion of revenue outside of the current base not collected during the prior year. The collection of revenue was a focus throughout the financial year, but was intensified in the last quarter as efforts were stepped up to ensure that SARS meets its annual revenue target.
SARS stepped up the approach adopted last year in the form of revenue initiatives including the optimal use of resources, increased integration between business units to promote cross-functionality, and reduced duplication.
These initiatives necessitated a hands-on approach at all management and technical levels, providing significant efficiencies. In addition, SARS implemented extensive business continuity plans and disaster recovery measures to mitigate revenue risks.
In conclusion, SARS would like to acknowledge and thank the tax-paying citizens of South Africa and the 14 500 men and women who work at SARS, for achieving the revenue target.
Issued by SARS, 3 April 2017
