- This week’s budget showed that South Africa’s tax income was not looking as dire as had been feared.
- Despite an economy at points paralysed due to one of the most stringent lockdowns in the world – which included alcohol and cigarette sales bans – tax income was only 11% lower than in 2019.
- This was due, in part, to eye-watering profits declared by mining companies.
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Going into the last quarter of 2020, both Treasury and the SA Revenue Service (SARS) expected to earn R300 billion less in tax than budgeted for at the start of last year.
That seemed like a fair assessment. The hard Covid-19 lockdown closed large parts of the economy for months, and tax earned from alcohol and cigarette sales halved due to long sales bans.
Corporate tax income was hit by thousands of companies closing for good, especially restaurants, bars and tourism-related businesses. Many – perhaps millions – of jobs were lost, forever, hitting personal income tax.
But this week’s national budget statement showed that, in the end, South African tax income for the past year would look almost R100 billion better than expected – it was down “only” 10.6% from pre-pandemic 2019.
This was due to a stronger-than-expected recovery in wages between October and December 2020, and SARS recorded a surge in VAT, with monthly domestic VAT collections since August higher than in pre-pandemic 2019. The tax agency also saw weaker-than-expected demand for its tax relief measures, including payment deferrals, which were offered to companies during the pandemic. In the end, tax relief of only R40 billion was granted – compared to a budgeted R70 billion.
At the same time SARS boosted tax income by almost R3 billion from 117 investigations into tax avoidance.
But perhaps the biggest factor was monster profits from mining companies, the full extent of which only became clear in recent days.
Some of the largest JSE-listed miners, which all pay at least some of their taxes in SA, announced their results this week.
They were spectacular, aided by a massive surge in gold, platinum, and palladium prices in recent months. Anglo American Platinum (Amplats), for example, reported a 70% increase in the prices it received for its platinum group metals last year.
In all, Amplats made a profit of R30.3 billion in 2020 – almost R12 billion more than in 2019. To illustrate the sheer scale of this amount, the estimated loss in revenue suffered by all of South Africa’s hotels, guest houses and lodges, put together, was R15.5 billion over the past year.
Amplats’ dividends paid to shareholders (20% of which goes to SARS), alone, was R12.2 billion – equal to half the amount earned from cigarette and alcohol duties last year.
Fellow platinum miner Implats’ revenue more than doubled to R58.1 billion in just the past six months, with its headline profit up more than 300% to R14.4 billion.
Another company with sizeable South African operations is Sibanye Stillwater, which mines a range of commodities, including gold and platinum group metals. Its attributable profit for just the past six months was R29 billion - 47 times more than its profit of R62 million for the same period in 2019. It paid a dividend of almost R11 billion, for just six months.
Will the party last?
While some are predicting that this is just the start of another commodity price boom, the price of gold has already fallen by 10% since the start of the year.
At the very least, however, mining profits cushioned South Africa against the worst blows from the pandemic – and enabled Treasury to scrap plans to hike taxes by R40 billion in the next three years.
Whether the mines helped to drag South Africa back from its fiscal cliff remains to be seen. In the past year, in part to cope with the Covid-19 economic fall-out, government’s gross borrowing increased from R433 billion to R670 billion. South Africa’s pre-pandemic budget deficit of below 6% blew out to an estimated 14% - a record - last year.
Debt repayments are now starting to balloon.
A fifth of all tax income is now paid to its creditors, with debt service costs reaching R233 billion over the past year. Even in mining super profit terms, this is a lot of money.