The National Treasury has lowered its revenue collection forecast for 2018/19 by R27.4-billion, largely as a result of belated moves by the South African Revenue Service (Sars) to address a major backlog in value-added tax (VAT) refunds.

The issue of delayed repayments has been a major bone of contention in recent years, with some businesspeople expressing concern that Sars was withholding the refunds in an effort to disguise its declining performance under now suspended commissioner Tom Moyane.

Finance Minister Tito Mboweni said last week that R20-billion of the R27.4-billion reflected increased VAT refunds, while R7.4-billion reflected lower corporate tax and personal income tax.

“Although some of the VAT refunds reflect one-off payments, we expect revenue shortfalls of R24.7-billion in 2019/20 and R33-billion in 2020/21, relative to the 2018 Budget,” the Minister said in his maiden Medium-Term Budget Policy Statement (MTBPS) speech to Parliament.

Speaking at the briefing, held as part of the release of the MTBPS, Sars acting commissioner Mark Kingon said the agency was currently prioritising the payment of refunds and admitted that the slow pace had hurt the cash flows of a number of companies, including small businesses.

In response to questions as to whether the delays were intentional, or the consequence of incompetence at Sars, Kingon said: “[Whether what occurred] was intentional or not, I think, is open for debate. “What I can say categorically is that it was not correct and we have to move on from here.”

Mboweni said Sars had committed to processing the outstanding VAT refunds as quickly as possible. “We estimate total additional VAT refunds of R20-billion, made up of R11-billion to clear the backlog, and an upward revision of R9-billion for the current fiscal year. We are of the view that this will provide a much-needed boost to the real economy.”

The National Treasury indicated that, at this stage, revenue projections assumed no changes to tax rates, but provided for yearly adjustments to personal income tax brackets, levies and excise duties, in line with inflation.

Meanwhile, Sars has been allocated R1.4-billion over the medium term for recapitalisation, following “serious governance failures” found by the commission of inquiry into tax administration and governance.

The governance failures have led to revenue shortfalls. In 2017/18, for the first time since 2008, tax revenue growth did not exceed gross domestic product growth. Revenue collections in 2017/18 were R800-million lower than estimated in the 2018 Budget.

Revenue shortfalls have widened over the past four years, with undercollections rising from R7.4-billion in 2014//15 to R49-billion in 2017/18.

These shortfalls would have been greater, were it not for increases in personal income, dividend withholding, capital gains and other taxes.