The depth of state capture and the staggering amounts of money that have been stolen from taxpayers has left the country in a desperate state. Revenue collection is falling far behind and economic growth has by all accounts stalled.
The lack of urgency from leadership in implementing the structural reforms necessary to kick-start this stagnant economy is frustrating – not only for ordinary taxpayers, but seemingly also for Finance Minister Tito Mboweni.
He reckons it is game over if we do not get going. SA starts the new fiscal year with an estimated revenue shortfall of anything between R50 billion and R130 billion.
Mboweni will deliver his 2020 budget against a backdrop of no economic growth, massive unemployment and crippling debt levels.
Population growth is outpacing that of economic growth, which means we are already on a hiding to nothing, says Mike Teuchert, national head of taxation services at Mazars.
Mboweni finds himself in a particularly tight corner, with growing demands on the fiscus, exacerbated by revenue-sucking state-owned enterprises (SOEs).
Heavy burden for 3m people
Yolandi Esterhuizen, tax practitioner at Sage Africa and Middle East, quotes figures from the South African Revenue Service (Sars) showing that 97% of all the income tax collected from individuals comes from a mere three million people.
Total estimated population of South Africa according to a report issued by Statistics SA last July – 58.78 million.
Esterhuizen adds that national debt is expected to balloon from R3.2 trillion to R4.5 trillion in the next three years.
She believes tax increases are inevitable – higher sin taxes (alcohol and tobacco) and an increase in the fuel levy are “a given”.
Johan Troskie, independent tax specialist, says the current growth rate is disastrous and no amount of tax hikes will really get us out of trouble.
The World Bank has slashed South Africa’s economic growth forecast for 2020 from 1.5% to 0.9% – which many believe is still over-optimistic.
The lack of urgency around kick-starting the economy may be due to the “remnants of state capture” within government. “We have a ruling party that is at war with itself and corruption and nepotism continue unabated,” says Troskie.
“You can tax people more, but unless you implement real structural reforms to ensure short, medium and long term sustainable growth, I am afraid Mr Mboweni may be right. It may be game over for SA.”
Darren Britz, tax attorney at Tax Consulting SA, says the growing shortfall is not because of insufficient legislation, but a combination of Sars not being able to collect taxes effectively and a slippage in tax morality.
“The average taxpayer is quite astute. They notice Sars is targeting those who are already in the tax net, but they are not going after those, who many know, are outside the net,” he adds.
Hugo van Zyl, independent tax specialist and committee member of the South African Institute of Tax Professionals, says those in the profession are increasingly hearing a rumour that a levy or tax on the transfer of capital or cash outside of SA could be introduced. South Africans are allowed a single discretionary allowance of R1 million and an investment allowance of R10 million per year.
If a levy is introduced (which will require new legislation) this may affect high-net-worth individuals who are using their R10 million investment allowance to transfer wealth out of SA.
Van Zyl is doubtful whether another increase in personal income tax rates will do the trick, but government could introduce a “loan levy” which was introduced by the apartheid government in the 1980s (adding, for example, 5% on top of the existing rates).
It is almost like a trade-off for a wealth tax or a restoration levy.
SA has other wealth taxes already – donations tax, estate duty, dividend withholding tax and capital gains tax.
Teuchert says there are several measures that can be implemented to make it cheaper and easier to do business in SA. One is to take tough decisions on labour reforms.
“The country may also need to reconsider the child grant because it is possibly promoting the wrong behaviour.”
Mboweni may reduce, curtail or not extend the lifespan of existing tax incentives such as the favourable tax regimes in urban development zones and special economic zones. Tax benefits for investments in venture capital companies have already been limited, with a cap on investments of R2.5 million for individuals and R5 million for companies.
The requirements of black economic empowerment (BEE) may very well also be seen as a tax on companies, says Teuchert. When BEE is placed in context of a 28% income tax rate on companies, we are not a favourable investment destination.
Troskie says it is not as though South Africans are bereft of ideas on what should be done, and President Cyril Ramaphosa has surrounded himself with well-respected economic experts; however: “If we do not act with urgency we may lose any further opportunity to affect the changes needed.”