South Africa Recession Adds Risks to Revenue Estimate, Nene Says

JOHANNESBURG (Capital Markets in Africa) – South Africa may collect less revenue than forecast for the year after the economy fell into a recession, Finance Minister Nhlanhla Nene said.

“There is now additional downside risk to the tax revenue projected at the beginning of the year because of the contraction in the economy,” Nene said in an emailed copy of a speech. “Fixing our economy to ensure that it grows faster and in a more sustainable manner is therefore critical.”

Africa’s most-industrialized economy unexpectedly entered its second recession in less than a decade. Ratings company Moody’s Investors Service more than halved it economic growth projection for the year after the news, saying it adds to the nation’s fiscal challenges. The Treasury forecast expansion of 1.5 percent for the year in its February budget, far below the 3 percent that President Cyril Ramaphosa pledged to target in the run-up to to ruling African National Congress’s leadership election in 2017.

“Faster economic growth simply means we will have more revenue to collect,” Nene said.

The government had tax shortfalls of 30 billion rand ($2 billion) and 49 billion rand in the past two fiscal years and said in February it will narrow the budget deficit to 3.6 percent of gross domestic product in 2018-19 from 4.3 percent last year. Nene is scheduled to present the mid-term budget to lawmakers on Oct. 24.

The South Africa Revenue Service missed collection targets every year since 2015 and in March Ramaphosa suspended Tom Moyane as commissioner and ordered an inquiry into the tax office.

Some taxpayers have begun to lose trust in SARS, hampering revenue collection even further, Nene said.

Source: Bloomberg Business News