When Finance Minister Enoch Godongwana delivers his Budget Speech on February 19, it is expected that reported tax revenues will be about R10-billion short of initial forecasts, auditing firm PwC South Africa tax policy leader Kyle Mandy has noted.

In last year’s Budget, the total tax revenue was forecast at R1.86-trillion. However, in the Medium-Term Budget Policy Statement (MTBPS), published in October, this figure was revised downward by R22-billion to R1.84-trillion.

The MTBPS revision was primarily driven by significant decreases in personal income tax (PIT), which was reduced by R10-billion; value-added tax (VAT), which was reduced by R13-billion; and fuel levies, which were reduced by R13-billion.

These declines were partially offset by a R12-billion increase in forecast corporate income tax (CIT) revenues.

Speaking at a briefing, in Johannesburg, on February 12, Mandy said that, as a result of these factors, actual revenues were now expected to be slightly lower than the revised MTBPS estimate by about R10-billion. This was mainly owing to lower-than-forecast VAT collections.

“It's not a pretty picture. It's somewhat disappointing,” he said.

He explained that the total tax revenue forecast for the 2024/25 financial year was initially set at R1.86-trillion. The MTBPS revised this down to R1.84-trillion. CIT revenue was initially forecast at R302.7-billion but was later revised upward to R314.4-billion.

PIT revenue was revised downward from R738.7-billion to R729-billion. VAT revenue saw a reduction from R476.7-billion to R463.8-billion. Customs duties were revised downward from R76.8-billion to R73.9-billion, while fuel levy revenue was adjusted downward from R95.8-billion to R82.4-billion.

As of December 2024, total tax revenue collections stood at R1.32-trillion. CIT collections amounted to R230.4-billion, PIT ato R521.7-billion, VAT to R322.2-billion, customs duties to R53.5-billion and fuel levy collections to R62.2-billion.

Mandy said actual revenue growth as at December was recorded at 5.3%, with CIT declining by 0.4%, PIT grew by 13.2%, VAT by 1.3%, customs duties by 6.7% and fuel levies contracted by 9.1%.

“Corporate tax remains a major concern. It is a significant contributor, but it is also by far the most volatile of all of our taxes because it depends on corporate profitability and economic cycles.

“You tend to have an outsized impact on revenue collections in good and bad times. We are highly reliant on corporate tax as a source of revenue, certainly compared to developed countries,” Mandy noted.

He said projected revenue collections based on year-to-date growth suggest a total of R1.83-trillion, with CIT at R311.8-billion, PIT at R734.7-billion, VAT at R453.3-billion, customs duties at R75.3-billion, and fuel levies at R83.2-billion.

Under this projection, the estimated revenue shortfall amounts to R30.4-billion, with CIT expected to exceed estimates by R9.1-billion, while PIT could see an increase of R4.1-billion.

However, VAT is projected to underperform by R23.5-billion, customs duties by R1.5-billion and fuel levies by R12.6-billion.

Mandy explained that, when projected revenue collections are assessed using the historical year-to-date to full-year average percentage, total tax revenue is expected to reach R1.82-trillion. CIT is estimated at R299.9-billion, PIT at R736.6-billion, VAT at R454-billion, customs duties at R77-billion and fuel levies at R83.7-billion.

Under this projection, the total revenue shortfall could increase to as much as R40.7-billion, with CIT exceeding expectations by R2.8-billion and PIT by R2.1-billion. However, VAT is still expected to underperform by R22.8-billion, while customs duties could see a minor surplus of R192-million. The fuel levy shortfall is projected at R12-billion.

The main contributor to the projected revenue shortfall is the lower-than-expected Vat collections, reflecting slower-than-anticipated consumer spending.

Mandy added that the decline in fuel levy revenues also continued to weigh on overall tax revenue performance. These shortfalls highlighted ongoing challenges in meeting revenue targets and underscored the potential fiscal pressures ahead of the upcoming Budget Speech.

Despite the shortfall in tax revenue, Mandy criticised the heavy taxation of South Africans.

“We have a significant tax burden in this country, We are pretty much at record levels in terms of the tax burden. Even though we have had significant base broadening in the PIT base, the rates have gone back up, and now the overall tax burden is at record levels.

“We expect the current year to come in at around about 9.8% of GDP. That is a significant tax burden from a PIT point of view – even among developed countries. We are among the highest in the world insofar as PIT is concerned. And bear in mind just how small the tax base is from which it's collected as well,” Mandy said.

Given these expected tax revenue outcomes for the 2024/25 financial year, he said it was likely that there would be no change in the CIT rate. Businesses can also expect no change in the capital gains tax inclusion rate and the dividends tax rate.

Mandy added that, despite international developments on the Two-Pillar solution to address the tax challenges arising from the digitalisation of the economy, no announcement is expected on February 19 on whether South Africa will implement a digital services tax (DST).

He said that, given the tenuous relationship with the US at the moment, it would be seen as inflammatory for South Africa to impose a DST at this time. There is also likely to be no announcement on proposed changes to the collective investment scheme tax regime.

Individuals can also expect to see no change in the PIT rate but will receive full fiscal drag relief and an inflationary increase for medical tax credits.

In terms of property taxes, no change in estate duty and donations tax is expected, but inflationary adjustments will be made to transfer duty tax tables.

Mandy said that, in terms of VAT, the Budget speech may include a proposal to expand the list of food items qualifying for VAT zero-rating to a limited extent – particularly chicken.

Above-inflationary increases on alcohol and tobacco, pending the finalisation of the policy review, are expected, along with an inflationary increase of duty on vaping products.

Mandy expected that the health promotion levy – also known as the sugar tax – would continue to remain frozen at its current levels, pending further research.

The general fuel levy would see an inflationary increase, although Mandy said this important revenue stream for the government would decline in the coming years as electric vehicles began to dominate South African roads.

The Road Accident Fund levy is also expected to receive no increase, pending possible reforms.

In terms of carbon taxes, Mandy said the three-phase implementation would see Phase 2 take effect from January 2026 through 2030.

With a discussion document published in November on the proposed design of Phase 2, containing mainly proposals for amendments to allowances and certain additional proposals – such as alternatives for electricity price neutrality and extending the 100% depreciation allowance for solar PV to green hydrogen production – Mandy said that a high-level proposal for the implementation of Phase 2 could be expected in the Budget speech.