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Scraping the pots to find revenue

Tax increases could have been one such pot, but it’s already been scraped dangerously thin.
At this point any new taxes would likely result in higher levels of capital flight, tax avoidance and tax evasion. Image: Moneyweb

It’s truly difficult to imagine which pot Finance Minister Tito Mboweni is going to scrape out in order to find money to fund government expenses when he presents the 2021 budget next week (Wednesday, February 24).

Tax increases could have been one such pot, but any attempt by government to introduce a wealth or solidarity tax now is likely to be met with strenuous opposition.

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Tax experts Joon Chong and Wesley Grimm from law firm Webber Wentzel warn that it would contribute to increased levels of capital flight, tax avoidance and tax evasion.

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“In our view, instead of increasing taxes or introducing new tax types, government should rather consider bolstering property rights, reducing the bloated public service wage bill, addressing serious crime like murder, rape and robbery as well as gender-based violence, cutting wasteful expenditure, and halting the widespread abuse and theft of state resources,” they said in a statement.

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“Any further attempt by government to tax South Africa into prosperity will fail as the already highly taxed and narrow tax base has insufficient resources to improve South Africa’s fiscal position,” they added.

The country had been suffering from inequality, poverty and high levels of unemployment even before the government introduced its Disaster Management Act to ‘manage’ the coronavirus pandemic.

‘Desperate situation’

“Coupled with the economically crippling and seemingly unending Covid-19 regulations, looting of state coffers and bureaucratic paralysis within the South African Revenue Service’s collection function, [this] has created a desperate situation for National Treasury,” said Chong and Grimm.

Yolandi Esterhuizen, tax practitioner and director at Sage Africa & Middle East, also paints a picture that most South Africans are all too familiar with: massive job losses, business closures and billions in tax revenue that has been lost because of the alcohol and tobacco sales bans during the Covid-19 lockdown.

Expenditure first started surpassing revenue around 2009 (around the time former president Jacob Zuma was elected) and increased from R156 billion in 2016/17 to an expected R370.5 billion for the 2021/22 period. Despite several tax increases over the years, it has not resulted in increased revenue collections.

Some good signs

Keith Engel, CEO of the South African Institute of Tax Professionals, says there are signs of economic revival that may ease the pressure slightly. Revenue returns have been higher than expected in the last couple of months, narrowing the expected deficit considerably.

“Therefore, I expect the budget to be largely within the status quo, possibly with little or no tax increases.” However, there may be no relief for bracket creep and slight adjustments to the fuel levy and excise and custom duties.

Engel expects that some announcements will again be kicked down the road for another year such as a digital service tax and a wealth tax.

Esterhuizen also expects the implementation of a solidarity wealth tax “soon”, but at the same time expresses reservations because of the cost and complexity of administering such a tax.

Pots of possibility

Chong and Grimm say although it is possible that National Treasury could introduce a new, lower tax bracket to widen the tax base, it is more likely that high income earners will be expected to carry a heavier tax burden.

“Taxpayers earning more than R750 000 per annum should brace themselves for increases of between 2% and 4% in their marginal tax rates,” they say.

Esterhuizen refers to corporate income tax measures that were introduced in February but have since been shelved until at least January 1, 2022.

These measures include the restriction on net interest expense deductions and limiting the use of assessed losses carried forward.

“It would be good for the minister to give an update on these plans,” says Esterhuizen. “Many businesses would welcome a lower corporate tax rate in these difficult times, and it would be a pity if they needed to wait much longer for relief.”

She added that many businesses – particularly those in the tourism and hospitality industry – will not survive much longer without government aid. The announcement by President Cyril Ramaphosa in his State of the Nation address that the temporary employer-employee relief scheme will be extended until March 15 is “reassuring”.

Many companies are still unable to operate at full capacity because of government regulations and are struggling to keep their heads above water.

Esterhuizen expressed the hope that Mboweni will announce further relief measures to help them too.

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This situation is from the killer combo of ANC corruption, ANC cadre deployment, ABC policies and ANC mismanagement.

As Johnson states in his book, South Africans can either choose to have a modern individual economy or the ANC, but they cannot have both.

Sadly the masses will choose the ANC every time. They have no understanding of true freedom and never will – Thanks to the ANC

This is what you get when you have cadre accounting.

The Minister only has one other option left: Ask Mary Poppins about “Supercalifragilisticexpialidocious”. Maybe the cadres haven’t plundered that yet.

Just plug that BIG hole in the pot (unaccounted spending) and we’ll be fine!
Sorry – forgot it was a honey pot.

A Transactional Tax with various Transaction Levels should be the method used in attaining tax funds. The process will be real time meaning that government can Zero Budget every month as well as being more efficient method of collecting tax monies.

Transactional Tax Levels:
R0 to R100 – 9%
R101 to R250 – 10%
R251 to R1,000 – 11%
R1,001 to R2,500 – 12%
R2,501 to R5,000 – 13%
R5,001 to R10,000 – 14%
R10,001 to R25,000 – 15%
R25,001 to R50,001 – 16%
R50,001 to R100,000 – 17%
R100,001 to R250,000 – 18%
R250,001 to R500,000 – 19%
R501,000 to R1,000,000 – 20%
R1,000,000 to R2,500,000 – 21%
R2,500,001 above – 22%

Everyone in society need to carry a proportional weight of the taxes.
Other tactic should be similar to what other nations as give you a speeding fine as a percentage of your income

Purgecoin, the idea is good, one challenge is that a corner cafe and a property conveyancer might make similar income but pay different tax because of how much money flows through their accounts.

@PeeWee

1% changes will not affect anyone who is willing to pay the price… With all the tax laws there are thousands being wasted by people and resources in trying to calculate what is due and not, how much to claim and not, this is not productive nor a good use of value.

This form of Taxing would encourage competition, support small businesses and allow businesses to justify the high price for a superior product whilst the timely collection of taxes continues.

The management of South Africa’s resources and Tax Payer Funds are beyond the competence of the ANC. Not a single politician went without food during the lockdowns whilst food insecurity increase to 50%.

@YeboBRU,
When you propose anything meaningful then we can debate on the quality my ideas.

Like all of my suggestions, they are not the only solution to problem which SA faces in addition there many problems and the road to hell is paved with good intentions.

LOL, NO!!!

What kind of communist economics do you ascribe too?

Transactional taxes, will dis-incentivise economic activity and produce a negative result. Why do you want to kill the economy?

Why would you want income levels applied to speeding fines, you must be a cadre trying to create a system for exploitation and bribery. There will be a speed cop on every corner of Sandton waiting to extort his bribe.

At least the article points to the real reason for the economic meltdown, the regulations to “manage” Covid 19 as opposed to the virus itself. The economic effects of the ANC regime’s meddling and their policy direction is likely to produce more missery and death then the virus itself, in my opinion.

Scraping the pot? The pot had been stolen for crying out loud

They already doing this, that is scraping the pot. One such thing is that when you are importing they stopping shipments much more now, this is apparently check that your are correctly declaring the tariff code. After inspection and all is in order you have to pay for the inspection and storage. Just one such an example.

Come find my pot cadres. Trust me … you wont

Them next step will be nationalizing the Reserve Bank so they can just print more money. That will be the end of life as we know it!

That is called Expropriation Through Inflation.
By the way the US printed 20% of all Dollar Notes in existence last year…

Julius Cesar predecessors did the same thing they remelted the gold coins from having 3.76 grams of gold and minted the new ones with 3.25 grams of gold (grams might not be exactly correct), that is the reason Rome collapsed. Value was illegally taken and used inefficiently, not able to generate new value to replenish government spending.

Buying votes only last so long.

How about life style audits by the ANC apparatchiks ?

End of comments.

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