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Recovery in gross operating surplus should boost Company Income Tax collections
Is the South African economy finally turning a corner? [Xinhua]
“We expect a turnaround in company tax collections as the economy improves, but this will come with a lag,” Dr Randall Carolissen, the SARS head of revenue and research said.
The gross operating surplus growth rose to 6.1 per cent year-on-year (y/y) in the third quarter from 5.1 per cent y/y in the second quarter and only 3.9 per cent y/y in the first quarter 2016.
Company Income Tax (CIT) is a tax levied on the taxable income (gross income less exemptions and allowable deductions) of companies and close corporation and it is the third largest contributor to total tax revenue for the past decade.
Although CIT has maintained its status as the third largest contributor, its relative contribution has declined from the pre-recession peak of 26.7 per cent in tax year 2008/09 to 18.1 per cent in tax year 2016/17.
This is further demonstrated by the reduction in the CIT-to-GDP ratio, which decreased from 6.9 per cent to 4.7 per cent during this period. The decline can largely be attributed to reduced company profits in the face of weak global demand following the global financial crisis.
CIT from the mining sector was the second largest – after the financial sector – contributor at R16 billion ($1.19 billion) in 2016/17, so the recovery in both commodity prices since the first quarter 2016 and an increase in commodity volume exports to a record high in October 2017 should show up in CIT collections shortly.
The third largest was transport and communications, while the fourth largest was retail trade. The former should be boosted by the increase in the volume of goods transported by land, while the latter should improve due to the recovery in real retail sales.
Treasury had anticipated only subdued domestic demand with household consumption only expected to grow by 1.0 per cent this year. Instead, household consumption expanded by 1.4 per cent in the first nine months, which is why wholesalers and retailers had to deplete their inventories to satisfy burgeoning demand.
That demand surge was based on solid income advances, as the compensation of employees grew by a nominal 7.9 per cent y/y in the third quarter from a 7.1 per cent y/y gain in the second quarter and only a 6.8 per cent y/y rise in the first quarter.
In response to a question by The BRICS Post on how the revenue service would deal with gains on cryptocurrencies such as Bitcoin, Carolissen said SARS was working with the tax authorities in Canada and the United Kingdom on how best to track capital gains in cryptocurrencies.
Helmo Preuss in Pretoria, South Africa for The BRICS Post
