South Africa will struggle to raise the tax revenues needed to reduce a budget deficit and support fragile economic growth due to ongoing problems in tax administration, the National Treasury’s Director-General Dondo Mogajane said on Wednesday.
In February the Treasury announced a raft of cost cutting measures, including a hike to value added tax (VAT) for the first time in two decades, to cap ballooning debt and close a large revenue shortfall.
The move to raise VAT to 15% from 14% is expected to generate an additional R23 billion ($2 billion) of revenue in 2018/19 to fund rising expenditure, particularly the government’s decision to expand free university education following months of protests around the country.
“Growth wasn’t what it should have been last year and it won’t be for a while,” Mogajane said.
“Tax revenue faces challenges from both the economy and from tax administration, and raising 60 billion rand in one year is going to be a tall order,” he said, referring to the amount needed to narrow the budget deficit.
Low tax collection has also been blamed on turmoil at the South African Revenue Service (SARS).
South Africa’s new President Cyril Ramaphosa — who took the helm as president in February, pledging to tackle endemic corruption — suspended tax commissioner Tom Moyane in March over disciplinary charges related to alleged misconduct.