- July 5, 2021
- Posted by: Ato
- Categories: Economics, Taxation
Synopsis: South Africa’s recovery may well be on its way as the government finances showed a significant improvement in May due to rising tax revenue despite restricted economic activity
SOUTH Africa’s recovery may well be on its way as the government finances showed a significant improvement in May due to rising tax revenue despite restricted economic activity.
Data from Statistics South Africa (StatsSA) yesterday showed that the government recorded a relatively modest budget deficit in May of R5.4 billion.
This was a significant improvement compared to the deficit of R52.4bn in the same month a year ago at the height of strict lockdown. However, StatsSA said that the fiscus remained constrained to recover to pre-pandemic levels.
The stringent lockdown regulations that were in place during May 2020 hindered economic activity and impacted tax revenue. StatsSA said total tax collected rose 46 percent from the prior year, however, this was underpinned largely by statistical base factors.
Measured on a month-on-month basis however, revenue receipts fell, albeit marginally in May. Personal income tax, which makes up nearly half of taxes collected, was primarily responsible for the modest decline, falling by 7.3 percent month-on-month.
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Investec’s economist Lara Hodes said Covid-19 had severely impacted consumers as household incomes were slashed.
“Indeed, many consumers remain financially constrained, despite the recovery from the economic lows, particularly in the second quarter of 2020, with unemployment sitting at a historically high rate of 32.6 percent,” Hodes said.
Corporate tax receipts increased 5 percent month-on-month, however, May was not a significant month for provisional tax payments.
StatsSA said the formal business sector generated R2.72 trillion in turnover in the first quarter of 2021, a decline of 2.4 percent compared with the fourth quarter of 2020. Hodes said many corporates remained financially distressed, while others have had to shut their doors permanently as a result of the pandemic.
“According to the latest company liquidation numbers published by StatsSA, a further 865 business were liquidated between January and May 2021,” she said. SA Reserve Bank (SARB) Governor Lesetja Kganyago, however, remained optimistic that the country’s economic recovery was on track.
Kganyago, on Wednesday, said he believed South Africa had adequate measures in place to reduce the impact of the Covid-19 pandemic on the economy.
“There is no question that our recovery will progress and our sound policy frameworks will continue to allow flexible approaches while building confidence,” he said.
“South Africa entered the Covid-19 crisis with stable and low inflation rates and moderate inflation expectations giving the SARB significant policy space to provide support to households and firms.”