The show must go on …

The need for decisive, urgent action has never been more critical.
Finance Minister Tito Mboweni. Image: Waldo Swiegers/Bloomberg

As Finance Minister Tito Mboweni prepares to deliver his much-anticipated Medium-Term Budget Policy Statement (MTBPS) on October 28, 2020, dinner table conversations again turn to politics, fiscal and tax policy and the like. Of course, everyone knows what should be done and by when, but few have the energy and the inclination to do it. The need for decisive, urgent action has never been more critical.

In between demonstrating his ‘master chef’ skills, Mboweni has given South Africans a taste of the ‘lay-of-the-land’ – best described as a ‘rocky road’. Unfortunately for South Africans, there is nothing sweet to look forward to in the upcoming MTBPS.

Meanwhile, back at the South African Revenue Service, Commissioner for Sars Edward Kieswetter has taken the opportunity to note the ‘catch 22’ in which Sars finds itself, requiring just short of R1 billion, instantly, to operate efficiently again. One does not need to be a rocket scientist to figure out this equation:

Skilled people + enforcement = effective tax collection & more revenue towards state coffers

However: 1 000 critical forensic/audit/specialist vacancies + inadequate data + unsuitable technology = dire straits (Commissioner for Sars, eNCA Interview October 7, 2020)

Suffice to say, the prognosis for South African taxpayers is not good:

Latest GDP projections for 2020 by the Organisation for Economic Co-operation and Development  (OECD) suggest that South Africa will top the list at -11.5% (well below the expected global average of -4.5%).

A MTBPS does not usually delve into taxes. This is usually the preserve of the main Budget Speech in February. This time around, however, the MTBPS may very well be all about taxes.

Commentators like Michael Jordaan (founder/investor of businesses such as Bank Zero and Rain) noted recently that out of 196 countries on the world stage, only 15 have higher marginal personal tax rates than South Africa (at 45%). It’s worthwhile to note that Personal Income Taxes (PIT) continue to be the largest contributor to overall tax collections, comprising 38.3% in 2018/19 (38.1% in 2017/18).

Our corporate tax rate of 28% benchmarked against the world average of 24%, is considered too high to effectively compete for foreign direct investment.

Sars revenue collection stats prove that corporate income tax collections are on a steady decline (16.6% in 2018/19 from 18.1 in 2017/18). Defining the real ‘tax gap’ – what Sars collects in taxes versus what it ought to be collecting – remains elusive.

There is great concern around the backdrop against which Minister Mboweni will deliver his statement, primarily the:

  • Unprecedented drop expected in 2020/21 tax revenue estimates compared to prior budgets, primarily because of the impact of Covid.
  • Sustained (temporary) shrinkage in the tax base as businesses continue to close and jobs are lost through large scale retrenchments, as well as the possibility of an uptick in the emigration of professionals and so-called ‘high-net-worth’ families abroad.

There is also significant pressure on Sars to do more, at speed, to improve tax collection through enforcement and effective administration, which is seen as core to achieving fiscal stabilisation. In addition, taxpayers are expecting Sars to actively pursue defaulters to collect the cash (including South Africans who are suspected of tax fraud in the likes of the Mauritius and Panama leaks).

The question is: can Mboweni afford not to capitalise Sars to whatever extent is necessary, to enable Sars to perform its mandate?

Notwithstanding passive resistance, taxpayers are bracing for new taxes on the horizon:

  • A three-year temporary tax (aka the ‘solidarity tax’) on high-net-worth individuals (a  ‘surcharge’ on taxpayers falling into the marginal tax bracket) and companies with turnover above a certain threshold.
  • A more permanent ‘wealth tax’ or ‘inheritance tax’  (subject to recommendations from the Davis Tax Committee) – in the context of a current estate duty/donations tax/land tax regime – coming into effect as early as 2021.
  • A possible digital tax based on the blueprint released by the OECD recently.

Perhaps a more palatable approach to lessen the pain South Africans are bracing for, is to simultaneously give due consideration to the reduction of tax rates, where it makes sense to, and to incentivise South Africa Inc to employ, employ, employ and ultimately  grow. Few will disagree that a complete overhaul of government incentives is long overdue.

As an armchair budget observer, I have plans on October 28, 2020. I cannot say I’m looking forward to it. However, the show must go on.

Nazrien Kader, Old Mutual Group head of Tax.

COMMENTS   9

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Add to this the fact that our taxes are being wasted on excess public sector wages, being looted by the politically connected, and we still need to pay for our own security, transport, education etc.

Why are the government hell bent on consistently hammering the minority (taxpayers) when you should be finding ways to cut your own damn costs and live within your means. Spend your precious time focusing on growing the tax base rather!

As a young person I’ve lost faith in their ability and willingness to take decisive action. We are a fully socialist state. And unless things change drastically, a soon to be fully failed state.

Stuartsa, you are now arguing like a rational and intelligent person. Our government does not think like that.

stuartsa It is because hammering taxpayers has no negative consequences for the government as the vast majority of tax payers do not vote for the ANC.

Hey cANCer, your biggest headache is the ever increasing public sector wage bill.

YOU created it, now YOU sort out the ^%^%$^!!!

Lowering taxes will not help anyone, trickle down economics does not work. Increasing taxes is also not feasible (I think that’s what Michael Jordaan was getting at). The only way forward is for government to make big changes to its spending, ruthlessly cut wasteful, inefficient expenditure and ensure the funds are used on something productive like, in the short term, bringing it’s debt bill under control. The biggest elephant in the room is unfortunately the public wage bill, this has to be cut.

The solidarity tax should be more appropriately and honestly renamed Corruption Tax.

You have to laugh.

A bunch of communists are (as usual) going to come up with an capitalist outcome????

Go look in the mirror and laugh at yourself if you even read this hogwash.

Its like a leopard changing its spots. Whahahaaaaaaaaa. A country of fools.

A “show” that must go on?

In 1993 there was a film called “Cliffhanger”.

It will be follow-up by the 1998 movie “FALLEN”.

End of comments.

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