The general fuel levy is also a relatively stable source of revenue‚ and although the recent heavy fuel price increases are likely to have a marginal effect on fuel consumption volumes‚ it is likely that forecast revenues for this tax will be left largely unchanged.
However‚ that is where the good news probably ends…
CIT revenue forecasts are likely to be revised significantly downwards in the MTBPS‚ by between R8-billion and R14-billion‚ as corporate profitability continues to disappoint and the effects of the poor economic performance of the economy in the first half of 2018 filter through into financial results.
The big question is whether VAT and import duties can continue to perform strongly for the rest of the fiscal year. The performance to date has been somewhat surprising‚ given the pressure the consumer is under due to significant tax increases and increases in the fuel price in recent months.
Any increase in interest rates (a distinct possibility in coming quarters) will add further pressure on the consumer and see a further fall in disposable incomes‚ negatively impacting consumption spending.
That said‚ the higher-than-budgeted public sector wage settlement will continue to support consumption expenditure in the short term.
It must also be borne in mind that the possibility of an expanded list of zero-rated goods continues to hover in the background. Depending on what is added to the list of zero-rated goods and whether any items are removed from the current list‚ this could have a significant effect on revenues‚ both for the current financial year as well as future years.
In light of these factors‚ we see the National Treasury adopting a cautious approach to revising its forecasts for revenues from VAT and import duties‚ factoring in some cooling off in the rate of growth of revenues for the remainder of the year.
Overall‚ we expect the National Treasury to largely maintain its February forecast for tax revenues for 2018/19 in the MTBPS‚ albeit with a downward revision for CIT largely offset by an upward revision for VAT and import duties.
Tax changes for the year ahead are not normally announced in the MTBPS‚ with these typically being left for the February budget. We can expect this to be the case once again this year (other than in respect of the possible zero-rating of additional goods).
That said‚ for the first time in a number of years‚ it is looking likely that further significant tax increases may not be required in the February budget – something that the government would want to avoid in an election year.
However‚ that depends on the ability of the government to fund additional spending pressures‚ such as the public sector wage settlement‚ the proposed economic stimulus package and the bailout of state-owned entities through the reprioritisation of expenditure or other measures‚ rather than through tax increases or increased borrowing.