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Rolling blackouts darken SA’s prospects of higher tax collection

Rolling blackouts darken SA’s prospects of higher tax collection
From left: A SARS office in Johannesburg. (Photo: Gallo Images | Luba Lesolle Nokwa Kha uses a bicycle service to deliver meat from the taxi rank to her shop. (Photo: Ashraf Hendricks) | Lethabo Power plant. (Photo: Thapelo Morebudi / The Sunday Times. | A hawker sells food in Polokwane. (Photo: Rudzani Tshivhase)

Ongoing power cuts have had a detrimental effect on the economy and tax revenue collection, with the SA Revenue Service estimating that the outages contribute to potential tax revenue loss of R60-billion per year, at a minimum.

Rolling blackouts are not only having a detrimental effect on the economy, but they are also casting a pall over the potential for the SA Revenue Service (SARS) to collect higher tax revenue from businesses and industry.

SARS’ final tax collection for the year ending March 2023 came in slightly below the R1.692-trillion that was pencilled into the February budget six weeks ago by the National Treasury. But it was still higher than the previous year.

SARS collected R2-trillion during the 2022/23 fiscal year but paid out more than it expected in refunds, bringing down its net tax collections (after paying out a slew of refunds to consumers and businesses) to R1.687-billion.

Total tax refunds surged by almost 19% to more than R381-billion, with value-added tax (VAT) refunds increasing by almost 22% to R319-billion as companies upped their investment spending, on which they can claim back VAT. 

Regardless, tax collections, after paying out refunds, were up 7.9% compared with the previous year. This was no mean feat by SARS considering that the SA economy is in the doldrums as a direct result of unrelenting blackouts. Also, new jobs are not being created at scale to grow the base of taxpayers.

Load shedding impact 

For the first time, SARS has also provided an estimate of the negative impact of rolling blackouts on the broader economy in 2022. That year proved to be the worst in SA’s 16 years of load shedding.

According to the Council for Scientific and Industrial Research, the country experienced more than 1,900 hours of power cuts in 2022 — making it the most intensive load shedding year.

SARS commissioner Edward Kieswetter said ongoing power cuts have had a “debilitating” effect on the economy and on revenue collection, with the tax collection agency estimating that the outages contribute to a potential tax revenue loss of R60-billion per year, at a minimum. 

The perpetual electricity disruptions are affecting the overall profitability of companies that could have generated higher profits and consequently paid higher taxes. During power cuts, some businesses (especially small and medium-sized businesses) are not able to operate or generate profits. These businesses, unlike big corporations, do not have the financial wherewithal to invest in backup power sources to keep their operations going.

On the positive side, Kieswetter said rolling blackouts have boosted the renewable energy industry, with more households and businesses installing solar panels. SA mostly relies on importing panels through third-party suppliers. SARS said solar panel imports increased by 73% to reach more than R5-billion in 2022. Importers of solar panels pay customs duties, a tax levied on imported products.

Further obstacles

A threat to SARS’ future tax collection levels includes SA’s weak economy, which the SA Reserve Bank expects to grow by 0.2% in 2023. Kieswetter said the expected marginal level of growth will make it difficult to achieve collection targets for the year ahead. The National Treasury is targeting revenue collection of R1.787-trillion for the financial year to the end of March 2024.

The operational and financial woes experienced by state-owned transport group, Transnet, will also stand in the way of higher tax collection levels. 

Within company taxes or taxes paid by companies on their profits, the mining industry’s contribution fell by 4.9% in 2022/23. This was largely due to lower export volumes in sectors such as coal and iron ore, where Transnet’s problems affected the ability of companies to get their commodities to market. Trains operated by Transnet are unreliable and ports are often congested, causing a decline in cargo volumes.

The mining industry has, over the past two years, boosted SARS’ tax collection levels and prevented a collapse in public finances. Mining companies have been recording higher profits and taxes since the early days of the Covid pandemic. The boom has since slowed and, coupled with Transnet’s woes, profits produced by mining companies are declining. DM/BM

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