Matthew Lester: CIT tax collection trend on the right track in SA

In January 2009 the USA economists Carmen Reinhart and Kenneth Rogoff produced a paper entitled ‘The aftermath of financial crisis.’

They reckoned that there would be a relatively quick recovery. The world was in awe of their work. There was hope.

The famous paper has been followed by the book This Time its Different. It must be wonderful to be an economist.

There is more to the recovery from a financial crisis than GDP recovery – the return of share prices and even unemployment rates and house prices.

One critical issue is tax collections. How long would they take to recover? And how much national debt would stack up in the interim. This question is critical in RSA where we are overly reliant on corporate tax collections as we do not have social security tax.

The decline the relative contribution made by companies ‘CIT’ is often overlooked, declining from 22.9% in 2009/10 to 19.9% in 2013/14. Reduced CIT collections resulted in a higher relative contribution by Personal Tax ‘PIT’ . The contribution of PIT to total tax revenue was 34.5% in 2013/14. The extent of the shift is shown by the fact that while PIT contributed only R28.9 billion more to tax revenue than CIT in 2008/09 it provided R131.4 billion more than CIT in 2013/14.

MatthewOver a third of RSA companies went into an assessed loss position following the financial crisis. And these assessed losses have to be recovered before CIT collections recover.

There is some encouraging news contained in the SARS stats 2014 package. The extent of tax assessed losses is declining. This is indeed significant.

Once the losses are recovered, the CIT contribution to overall tax collections may increase again. A continuing trend of this nature may mitigate some of the damage we could experience in the medium term as RSA tries to curb the national deficit that has already increased by R1,2 trillion since 2009.

But at least we are on the right track.

This article also appears on www.biznews.com


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