Tax Revenue Expected to Decline in 2024/25

Revenue from tax collection for the fiscal year 2024/25 is projected to decrease by R22.3 billion compared to estimates from February, according to Finance Minister Enoch Godongwana. He delivered this announcement during the Medium Term Budget Policy Statement (MTBPS) speech in Parliament on Wednesday.

Significant Adjustments to Revenue Estimates

Godongwana stated, “Over the next two years, the main budget revenue estimate has also been lowered by R31.2 billion. In the absence of faster growth and amid external risks, tax revenue will remain under pressure, forcing us to make difficult decisions regarding spending.”

He emphasised that reduced revenue would limit the government’s ability to meet various fiscal demands, necessitating challenging trade-offs across all levels of government. “By adhering to our debt-reducing strategy and confronting these trade-offs, we can create the necessary conditions for a fast-growing economy that facilitates employment,” he added.

Projections for Future Tax Collection

In the expanded MTBPS, the National Treasury projected that the South African Revenue Service (SARS) would collect approximately R2.3 trillion in tax revenue by 2027/28. The report noted, “The tax-to-GDP (gross domestic product) ratio remains resilient, with tax collections expected to stay buoyant over the medium term. Tax revenues are projected to increase to R2.3 trillion, or 24.8% of GDP by 2027/28. Tax buoyancy is expected to rise to an average of 1.08 over the medium term, up from 0.95 in the current year.”

Continued Challenges Ahead

Despite these optimistic projections, revenue collection is anticipated to decline in the coming years. Compared to estimates in the 2024 Budget Review, which included high levels of energy imports, gross revenue collection is projected to fall short by R41.4 billion in both 2025/26 and 2026/27. The Treasury noted that enhanced tax revenues will depend on sustainable economic growth, as well as improvements in tax compliance and administration.

Sector-Specific Insights

The department indicated that an improved profitability outlook would likely lead to an increase in corporate tax collections over the next few years. However, a decrease in renewable energy-related imports, linked to stabilising power supply, has led to weaker import growth, resulting in lower collections of import VAT.

Additionally, the MTBPS highlighted that net VAT collections are expected to fall below the 2024 Budget estimates, exacerbated by continued strong growth in VAT refund payments. It also noted that under-collections in fuel levy receipts compared to the 2024 Budget estimates would impact revenues in the outer years.

As the government navigates these fiscal challenges, the focus remains on creating an environment conducive to economic growth and improved tax collection.