JOHANNESBURG – Increasing the securities transfer tax from the current level of 0.25% to up to 0.5% is one of the possible options available to government to raise additional tax revenues, PwC has said.
Securities transfer tax applies to the purchase and transfer of listed and unlisted securities, including shares.
Speaking about the firm’s budget expectations, Kyle Mandy, tax policy leader at PwC South Africa, said although there are questions about the impact this might have on equity markets, increasing the rate to 0.5% could raise around R5 billion in additional revenue.
Mandy said while some countries do levy taxes on share transfers in terms of stamp taxes, others don’t. In the UK, stamp taxes are levied at 0.5%, but countries like Australia don’t have stamp taxes on share transfers at all.
“It is a difficult question, but perhaps an appealing possibility in the current environment for Treasury.”
One of finance minister Pravin Gordhan’s biggest objectives will be to convince credit ratings agencies that government is running a tight ship and implementing prudent fiscal policies.
Prof. Osman Mollagee, partner for tax international services at PwC, said if fiscal deficits were to widen, the next step would probably be a downgrade, although he expects that this would be avoided.
Against this background, tax increases are almost inevitable.
While some analysts have predicted that a new tax bracket of up to 45% could be introduced for high income earners making in excess of R1 million per year, Mandy does not expect any announcement to that effect.
Such a step would not raise significant tax revenues, and will send a negative message with regards to economic growth. While all taxes negatively impact growth, the adverse impact of taxes on income is more severe than indirect taxes, he said.
As was the case last year, personal income tax rates will likely be increased by one percentage point across the board, with the exception of the lowest bracket of earners.
“That would raise about R10 billion in additional tax revenues.”
The VAT rate of 14% and the corporate income tax rate of 28% are expected to remain unchanged. Although an inflationary increase in the general fuel levy of approximately 15 cents a litre is probably a given, it could be hiked by as much as 30 cents (2015: 30.5 cents) which would raise additional revenue of around R6.5 billion. Meanwhile, an increase of 20 cents per litre in the Road Accident Fund levy (2015: 50 cents) would not be surprising.
No significant changes are expected with regard to estate duty and donations tax as the Davis Tax Committee are still considering wealth taxes, while further changes to transfer duties on property are unlikely.
Since the Medium-Term Budget Policy Statement (MTBPS) in October, the World Bank revised South Africa’s economic growth expectations for the year to 0.8% from a previous 1.4%, in line with a prediction of the International Monetary Fund (IMF), which lowered its GDP forecast to 0.7% from an earlier 1.3%.
Against this background revenue collection, which was already revised downwards by around R7 billion in October, will remain under pressure.
“We expect that the actual revenue collections for the current year are going to fall short of those downwardly revised forecasts from the mini-budget by anywhere between R12 billion and R22 billion,” Mandy said.
While revenue collections have started the fiscal year fairly well, there has been a rapid drop-off in the rate of growth of tax revenues in the latter part of last year.
“We are in a lot of trouble if we continue to see the declines in revenue growth that we have seen over the last few months.”
Mandy said the major concerns are personal income tax and VAT. Personal income tax revenues tend to be relatively stable, but in October and November the rate of growth of personal income tax collections showed a rapid decline.
“That is of extreme concern and would tend to suggest that employment levels have dropped off quite significantly in the last quarter of the year.”
The graph below shows consolidated revenues (mainly tax revenues) and consolidated expenditure.
Mandy said up until 2008 South Africa was running small fiscal surpluses, but in the wake of the global financial crisis, the deficit grew to roughly 6%. While it has come down from these levels, it has remained fairly high.
The problem is not so much tax revenues, which have recovered to levels seen prior to the global financial crisis, but expenditure, which has increased “astronomically” since the crisis from levels of around 27% of gross domestic product at that point to nearly 34% of GDP, he said.
Increases in expenditure are exerting upward pressure on revenues, which is why tax increases were introduced last year and are also expected on Wednesday.
“The trouble that we face is there is still upward pressure on those expenditures – demands coming from various sectors of society for increasing government expenditure rather than reducing government expenditure,” he said.
Although the expenditure ceiling is under threat due to higher than expected inflation, PwC does not expect that government will increase the ceiling, but that the minister would rather introduce budget cuts in other areas.