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‘Tax hikes likely in 2016’

But increase in corporate tax rate improbable – PwC.

JOHANNESBURG – It is more likely than not that National Treasury will again introduce tax hikes in its February budget, but it is implausible that the corporate income tax rate will be raised in light of concerns around South Africa’s competitiveness.

Kyle Mandy, tax policy leader for PwC South Africa, says corporate tax is the most distortive from an economic perspective and the Davis Tax Committee has already indicated that it is not the best avenue to raise additional revenue.

The 10th edition of the World Bank Group and PwC’s Paying Taxes study ranks South Africa 20th out of 189 economies for ease of paying taxes, falling one place from last year. Mauritius, in the 13th position, was the best-ranked African country.

Mandy says in isolation, South Africa’s total tax rate (a measure of the burden of all taxes a company must pay in relation to its commercial profit) of 28.8% compares relatively well with other regions (see chart below).

Screen Shot 2015-12-02 at 4.30.46 PM

Source: Paying Taxes 2016 (* Southern African Development Community)

Albeit lower than global and regional averages, South Africa’s total tax rate of 28.8% is also higher than many of its neighbours or competitors, including Zambia (18.6%), Namibia (21.3%), Mauritius (22.4%) and Botswana (25.1%).

Mandy says three of the countries that perform better than South Africa (Lesotho, Namibia and Botswana) are members of the Southern African Customs Union (Sacu). South Africa effectively subsidises these countries through the Sacu system by giving them more than their fair share of customs duties.

“This is the result. Those countries are actually able to have a much lower tax burden on the companies that operate in those countries, with the effect that they are actually able to compete effectively with South Africa through that lower tax burden.”

Another area of concern is South Africa’s profit tax of 21.7%, which is considerably higher than the global and African averages of 16.2% and 17.7% respectively. South Africa ranks 135th in this category. 

While the considerable pressure on the fiscus was already apparent during the Medium-Term Budget Policy Statement in October, the situation is unlikely to improve. Government now has to fund an additional R2.7 billion for tertiary education after it announced a freeze on student fees for 2016.

Moreover, economic growth expectations continue to deteriorate.

With corporate tax unlikely to be in National Treasury’s sight, and tax hikes a possibility, where are the additional taxes going to come from?

Mandy says personal income tax is the second most distortive tax. Moreover, individual taxpayers across a very narrow tax base already bear a substantial tax burden.

“There is significant concern whether or not you can actually further burden the individual taxpayer in that regard.”

Of the three major taxes, value-added tax (VAT) would have the least negative impact from an economic point of view if it was to be raised, but it is a political hot potato, which is vehemently opposed in union circles.

Mandy says because VAT is the least distortive National Treasury should theoretically consider this avenue. It is levied across a broader base, and is hence the one tax that would enable it to raise a significant amount of additional revenue without a meaningful increase in the rate. This couldn’t be achieved with increases in personal income taxes.

“I think they’ve probably got little option in terms of raising VAT should they be seeking to raise significant additional taxes in the future.”

However, at this stage National Treasury probably hopes that tax collections will exceed expectations and that it won’t need to raise taxes.

“But I think given particularly where the economy is going and the further downgrades in growth expectations for the year, there is a significant risk that we will be staring at further tax increases next year again,” Mandy says.

The considerable decrease in the price of oil provided government with an once-off opportunity to increase the fuel levy in February this year without having a significant impact on the fuel price.

“That opportunity won’t present itself again. So we got lucky this year.”

With the rand on the slide, any further decreases in the oil price will likely be offset.

“I think we are in a difficult position come February next year.”

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talk about the “bleeding obvious”. the country is running out of money – overseas investors will be wanting more interest on their loans to sa govt – so who is left? YOU

What was the figure R700million or billion wasted? It is not running out of money but the money is corrupted or wasted. That is the real problem.

If you started cutting back on the size of Zuma’s cabinet and then the corruption, waste and everyone bloated salaries and perks. You could lower the tax rate and that would create more jobs and more tax. What they can raise is far less then what is wasted and if they do raise taxes they will get less in the end and have a bigger burden.
No point in raising taxes when the sink hole is getting bigger, fix the hole.

Your last sentence sums it up perfectly. Great mental image!

Start by cutting the R50m a year that goes to support “King” Goodwill Zwelethini, his 6 wives and 27 children… That’s where your tax money goes, folks.

Why all the debate about which taxes will go up? Big business and government are in bed together so those won’t go up,the trade unions will not allow an increase in vat, so the income tax of the middle class and wealthy will be raised come next February!

Not much I can do about higher taxes! I can only then cut back on my output costs – less garden services and a smaller garden – and less domestic services, to start with. I cant stop Eskom. The Rand /$ is in” sy moer”! I will still enjoy my steaks! My contribution to unemployment, sadly, is less “hangers-on”!
Joke – like the kids at school said – ” My dad bought a new Mercedes” – Other kid answers…”That’s nothing, we had a braai last night”.

End of comments.





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