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The National Treasury desperately needs to raise revenues and may end the solar tax rebate soon.
The weaker-than-expected GDP will likely increase the budget deficit further than the National Treasury’s initial 2023 forecasts.
“For 2023/24, we expect a shortfall in taxes of around R47 billion accompanied by higher expenditure of R56 billion, pushing the deficit to 5.5% of GDP. The outcome is markedly higher than the National Treasury’s target of 4%,” economists at Nedbank said.
“The commodity price upcycle, which led to a windfall in tax revenues last year, has turned sharply, significantly reducing corporate tax collections.”
Despite lessening intensity over the last few days, load shedding has also hurt growth.
Total revenue for the five months that ended August dropped by 0.7 y/y, with corporate taxes declining by 13.7%.
Although personal income taxes (8%) and value-added tax (VAT) (5%) increased, it was at a slower pace compared to the same period last year.
With this in mind, Nedbank said that revenue will only grow by 1%, far lower than the 3.5% pencilled in the 2023 budget.
For the Medium-Term Expenditure Framework (MTEF) period, revenue is expected to be R156 billion lower than the Budget 2023 projections.
That said, South Africans should not expect anything major from next week’s Medium Term Budget Policy Statement (MTBPS).
“No major revenue measures will be announced in the MTBPS, and budget developments over the remainder of FY2023/24 will determine whether we can expect tax changes in the February 2024 budget statement,” Nedbank said.
Solar warning
Although load shedding has significantly dropped in intensity over recent weeks, this could prove to be an issue for anyone looking to purchase solar panels.
“The government will likely discontinue the solar panel tax rebates introduced for the 2023/24 tax year as load shedding becomes less intense,” Nedbank said.
The solar panel tax rebate was announced by Finance Minister Enoch Gondongwana during the 2023 Budget when South Africa was facing higher levels of load shedding.
Under the system, individuals who paid income tax could claim a tax rebate to the value of 25% of the cost of new and unused solar PV panels at a maximum of R15,000.
The estimated installed rooftop solar has doubled since June 2022 to roughly 4,500 MW and is one of the reasons that load shedding has been at lower stages due to the drop in demand.
Earlier this week, Electricity Minister Kgosientsho Ramokgopa said that his department wanted the tax rebate extended to inverters and batteries as this would increase the amount of solar.
However, the National Treasury has dismissed these calls as it only focused on components that can generate electricity.
Researchers from Stellenbosch University also showed that inverters and batteries without solar panels can add additional strain to the grid as they push peak power demand higher as these units come online as soon as load shedding ends.
Inverter installations that are thus not connected to solar can negate load shedding’s impact by up to 85%.
Read: How to get the best out of solar in South Africa
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