No matter the label, SA has little tolerance for tax hikes

Plugging the leaks would be better than resorting to a wealth tax, vaccination tax, solidarity tax, or general tax increase.
Between a rock and a hard place – Finance Minister Tito Mboweni. Image: Moneyweb

The South African economy and certainly the tax-paying community have little tolerance for further tax increases. Government acknowledged this much during the mini-budget in October last year.

Finance Minister Tito Mboweni and his team are burning the midnight oil to find solutions to keep the debt wolf at bay and to find money to keep SA Inc’s doors open. He will be delivering the 2021 budget later this month.

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The pandemic hit the country while its economy was already limping, exacerbating the economic contraction, causing millions of job losses and creating an urgent need to have at least 67-70% of the population vaccinated against the coronavirus for it to loosen its grip on the country.

One of the options to pay for the vaccinations and get the economy going again has been a dedicated tax – wealth or vaccination tax – or a general tax increase.

David French, tax director at Mazars, says South Africa’s Laffer curve has reached the point where despite an increase in tax rates, the country is collecting less in tax.

The Laffer curve illustrates the relationship between tax rates and the amount of tax revenue collected by governments.

Tax experts says a once-off ‘Solidarity Tax’ could work if it was simple to calculate and administer, but strongly advise against it.

Robyn Berger, partner at Bowmans, says it has been easy to target the same people who regularly pay their fair share.

“We are experiencing a massive outflow of skills, and emigration remains high. People with wealth [who are being targeted for the wealth/vaccination/solidarity tax] have the ability to choose where they want to live – even in a Covid-19 environment,” she notes.

The options

Keith Engel, CEO of the South African Institute of Tax Professionals, says people are economically “tapped out”.

“It does not matter how you label this tax, if we are tapped out we are tapped out.”

Everybody, even up to “upper middle class” and “lower wealthy class”, is far worse off than a year ago. People are feeling the pinch because their income has declined and inflation is higher than expected (around 3.3%).

Engel says it is simply not economically viable to tax any more. Until Mboweni delivers his budget all options remain on the table. “I think it leaves either reprioritising existing funds or borrowing more. At the end of the day I think government is going to borrow more”.

The cost for the vaccination is touted to be around R20 billion.

Bernard Sachs, tax partner at Mazars, says the numbers are not as scary as government is making them out to be.

He explains that more than around 19 million people might be covered by medical aid schemes, and the Solidarity Fund has committed itself to the vaccination of 10% of the population (around six million).

In order to achieve so-called herd immunity one needs to vaccinate approximately 67% to 70% of the population, which means that around 42 million people have to be vaccinated.

That leaves around 17 million people (42 – 19 – 6 = 17) for government to concern itself with.

“I think government should not be making such a hoo-ha about the cost of the vaccines,” says Sachs. “It should just get on with the business of reallocating the funds in order to vaccinate the population and to allow the country to get a sense of normality back.”

Plug the leakage

The revenue shortfall has been estimated at around R304 billion, although there are signs that it may be slightly smaller than expected.

The alcohol and tobacco bans have certainly knocked collections real hard, says Sachs.

Government has been losing R1.25 billion per month on customs and excise duties on cigarettes during the ban, and double that on alcohol.

According to Sachs 40% of the local cigarette market is made up of illicit products. The excise duty on a packet of cigarettes is R16.66 and the value-added tax is around R5.

“There is significant leakage taking place. Government needs to plug that leakage. It could be paying for a lot of vaccinations.”

Second wave impact

The impact of the second wave on collections is not yet known. During the first lockdown periods, many companies still had some reserves to pull themselves through, says Berger.

“However, very few have any reserves left, especially in the hospitality industry … Businesses that may have survived may be forced to close due to the second wave and the lockdown measures implemented.”

This mean there will be fewer taxpayers, says Berger.

Mike Teuchert, national head of taxation at Mazars, refers to concerning statistics issued by Statistics South Africa. According to the figures, 67% of construction companies temporarily ceased trading during the Covid- 19 period, 60% in trade, 54% in agriculture, hunting, forestry and fishing, 47% in community, social and personal services, 44% in electricity, gas and water supply, and 38% in manufacturing.

He says the biggest challenge is to nurse these companies to ensure they have the ability to get back into the economy and to create jobs again.

Glimmer of hope

French notes that there is some light at the end of the tunnel. Actual revenue collections in December were up 6% (R10 billion) on the previous year. The collection figures came in at the highest level ever. It is completely counterintuitive, he says.

Despite the lack of economic activity, inflation is around 3.3%. Along with the December collection numbers it appears that there is an underlying robustness in the economy that we have not anticipated.

“I cannot put my finger on it, but it does make me a little bit more optimistic,” says French.

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COMMENTS   36

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How about they put more effort into stopping fraud and wasteful expenditure and lining of cadre’s pockets? And put a lid on the feeding trough? Things like that will save a lot of money. If ‘we’ just stop steeling the money it will also help.

Chris Stoffel you are now arguing like a rational, intelligent person who can connect the dots. However, the ANC works on different principles. Just two are: No 1: “Talking is as good as doing”. Whenever faced with a problem you just have a meeting with lots of people. The meeting then takes a collective decision. If later it turns out to be a disaster, then you just call another meeting. However, under no circumstances whatsoever will anybody ever accept responsibility for anything because it was a collective decision of the meeting. No 2: There is no problem in making debt. If it needs to be repaid, then that is tomorrow’s problem. Tomorrow is another day and tomorrow will take care of itself.

Just about sums it up.

And if we can’t make more debt we’ll just start printing more money all the way into the abyss…

I think that we’re beyond the tipping point on tax hikes, where any further hikes will bring in less actual tax revenue.

Raise taxes, just more will disappear!

Tax me more so they can steal more…!!
Tax me more and I ceae to employ my domestic help and garden help!! They sadly made too many children, which I still fund via SASSA.. that I can’t avoid as a decent tax payer.
Hell, I’m tired of funding all the corruption. The vaccine Cost benefit ratio far outweighs the funds missing with eskom, denel, prasa, to name a few.
And nobody has yet been arrested… Probably never will either. Proudly south african..¿

Taxing the people into emigration as it is !!

…that’s why Covid is so convenient for our thieving Govt: Saffas can’t travel abroad with all these air travel restrictions.

…but your wealth can still travel abroad…even with travel restriction 😉

@Offshore. Very good point! Yes, we can mitigate by keeping our assets safe in another country’s jurisdiction.

However, as paying INCOME TAX is concerned, one cannot escape by being subject to SARS tables, unless if you become a non-resident for tax purposes. That means physically relocating to another country, settled and certain.

Taxation in SA is more akin to expropriation without compensation that a legitimate expectation that the citizens provide tax money to cover the country / government expenses.

When you have a “gubment” that is BROKE how do they get money????????????????????????????????????????????They raise taxes. The best part is cutting taxes and giving money to “working” businesses and people has shown to boost the economy. Duh, so the path you are on with more taxes is THE WRONG PATH. But the brainiancs in “gubment” will increase taxes. Where do they plug the hole of the recently government sponsored 2,000,000 (two million for the mathematically challenged) unemployed people that WILL NOT be paying taxes and cut their spending losing their houses????????????????????????????????????????????????

there’s zero tolerance for tax hikes from the non-ANC body of taxpayers. we hear on a weekly basis of billions going down the gutter without any form of accountability. we’re not funding this corrupt circus anymore.

100% one more tax and im out of here

Iomi etc :precisely what the ANC want !!

In my immediate knowledge i have seen emigration of individuals who were contributing about R15m a year in personal taxes if I do a quick calculation. Other taxes probably add 50% to that…..
Multiply that by thousands, combine with COVID, bad economic policy decisions combined with cadre deployment and BBEEE and there’s the reason. Treat the cause NOT the result!

And I did not even mention corruption, I am done with being fleeced to line the pockets of ruling party cronies and their spy network.

58% of tax income in the country goes to 2.5% of the population, the government employees. (Mike Schussler)

That is where the savings should be made.

3 Million people pay nearly all the taxes, carrying the other 54 million people. When are the 54m going to make a contribution?

The CPI number is RUBBISH!!! as a measure of inflation for tax paying citizens. We all know that.

For anybody that is in a tax paying bracket inflation and the CPI figure has nothing in common. It is just an ANC con job.

Agree. I have been saying this as well … the CPI numbers are cooked. Understated to a large extent!

The truth is; The government only have what they collect from us. Even if people (from 1st to 3rd world countries) think their governments have bags of money and must pay for X, Y and Z.

‘Plugging the leaks’is indeed the best (only?) option.

A good way to put more money ‘on the streets’ is actually to REDUCE taxes. Simple, since people generally will spend that extra R100 or R200 they get from their salaries at the grocery store, spaza shop, hairdresser, a gardener, etc.

Good idea and a no brainer JapieM. The problem is the VAT and taxes with a lot of shops etc will not find it’s way to SARS because of manipulation and self greed

Wally

How about cutting the SASSA grants? 18 million people collecting every month. People are having kids in order to collect more money grants. The new child is then shipped off to nana in the Transkei. The tax payer funds this and the government is actually proud of these numbers…the mind boggles.

Finance Minister Tito Mboweni …his expression starting this article is a priceless “MasterCard” moment reflecting the exasperation of everyone in South Africa

Minister Mboweni is beyond feeling annoyed …all his efforts to get the government to understand basic income and expenditure logic has failed, let alone the more intricate solutions he has tabled to get the county moving

If you look at this, Moneyweb on SA heading for a sovereign debt crisis, Eskom debt and loadshedding, covid / ANC economic destruction etc one better have a lifeboat in another country, preferably a live body in the first world.

I agree the Johnson guy’s proficiency is starting to look more and more likely.

…that’s why I always said, Govt will instead try to “mobilize” national retirements savings, to plug holes in their budget.

Higher tax we all feel immediately (and immediate less popularity for the ANC), whereas some ‘loans’ by your pension fund, we’ll hardly notice a few Rbillion disappeared off the nation’s R4+trillion savings.

Watch this space (unfortunately) 🙁

Spot on. The focus will be on other things like factional infighting, Zuma, Ace, Zondo etc whilst the skimming machine will be in full swing.

I cannot fathom why the Auditor-General has not done a basic bank reconciliation of exactly where the R500bn (yip Billion) pledged by Ramaposer in April last year, has disappeared to.
In my youth as an Auditor, tracking and tracing transactions was not rocket science – and in today’s highly digitized environment there must be a trace or record.

Maybe the DA should ask in Parliament for a breakdown of this “expenditure” [read ANC looting project].

Increase the personal Tax more and I will stop working.

Go fetch the Taxpayer/South African money in Pakistan and Dubai banks first!

Cannot agree with you more. Molefe, Singh, VBS looters and all the other thieves are stil running free. Priority 1 recover the money and assets. The wheels of Justice and arrests from the Zondo Commission needs to take action.

Sunrise to Sunset put them into squads to benefit SA instead of locking them up 24 hrs a day.

Clean up our rivers,dams and wetlands would be a good start.

Those with degrees send them to rural areas to teach economics, build toilets, clean hospitals and assist in mortuaries. I could go on but in SA that would be Rights Abuse.
Wally

…oh, higher taxes the ANC say?

OK, what then about Govt’s drive for renewed ECONOMIC GROWTH??

…look here, my useless thieving comrades, it’s time that Govt will have to MAKE DO with even LESS tax than they received up to now!

Less tax revenue = less wastage / less for corruption.

If this govt was run by ethical people, you would’ve managed OK with half you’re collecting now.

Laffer Curve has already been reached. Only way is now Argentina or Zimbabwe – tango or fence jumping

the way SARS treats their fast disappearing taxpayers is counterproductive in so many ways.We pay some of the highest taxes in the world – for what in return? Govt should be incentivising people to stay by cutting taxes.This may also have the beneficial effect of keeping small business employers in SA. And criminalising taxpayers for making a mistake is likely unconstitutional, and one day, a tenacious lawyer will argue the issue successfully in court.

Hike VAT to 17% for general goods, hike VAT on luxury goods to 25% and hike import duties on stuff we do make here.

That will produce income from the dodgers and it will not hurt the jobs. People may buy cheaper goods but they never stop buying. The dodgers need their Bentleys and Johnny Blue.

Reduce all tax. Increase the price op Petrol and Diesel by Between 5 and 10 rand. That is the only way that the multi billion taxi industry and other dodgers will pay.

Its very simple : the less tax you give them the less can be stolen by the ANC apparatchiks. Help prevent crime !

End of comments.

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ECONOMIC DATA  

  CPIThe Consumer Price Index (CPI) measures monthly changes in prices for a range of consumer products Jan 2021 3.20%
  CPI ex OERThe Consumer Price Index excluding Owners’ Equivalent Rent (CPI ex OER) measures monthly changes in prices for a range of consumer products excluding Owners’ equivalent rent that measures changes in the cost of owner-occupied housing Jan 2021 3.40%
  RepoThe rate at which the Reserve Bank lends money to the country’s commercial banks and set by the Reserve Bank’s Monetary Policy Committee. Feb 2021 3.50%
  Prime lendingThe Prime Lending Rate is the rate of interest that commercial banks will charge their clients when issuing a loan (home loan or vehicle finance) Feb 2021 7.00%
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