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Taxpayers keep paying the price for policy inaction

Where will the much-needed additional revenue come from?
Finance Minister Tito Mboweni reckons it will be ‘game over’ if SA doesn’t get going with the structural reforms needed to kick-start the economy. Image: Shutterstock

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.

Read: SA faces possible tax revenue shortfall of R50-R98bn 

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.

Read: SA’s problem of a narrow tax base and high taxes

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.

Rumour

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.”

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I don’t really understand ‘high English’ but the man said RSA is murtu? Or something like that?

Lol. Ja swaer. Is wat die man gese het.

“If we do not act with urgency we may lose any further opportunity to affect the changes needed.”

So what are we doing urgently? EWC is one, taxing the 3m taxpayers more so they leave is another, and bailing out failing SOE’s is a third.

Job and growth killers one and all.

You forgot about NHI.

The lack of urgency from leadership in implementing the structural reforms = complete lack of understanding of basic economics. This is typically socialist mindset.

“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.”

Are you kidding us ??????

The sheer arrogance and ignorance in this statement alone warrants public flagellation

Ok, so lets just CONTINUALLY IGNORE THE approx ONE TRILLION ZAR [and growing ] lost to corruption ELEPHANT IN THE ROOM shall we then ?

And blame it instead on ‘SARS’ and a ‘slippage in tax morality’

Well Mr Britz…..why on earth do you think there is a ‘slippage’

Really ??…..no clue at all ?

SMH

Agree. Some tax attorneys are exactly that….legal eagles. Regrettably, they make for POOR economists! (to be polite)

95% of the reason SARS is collecting less, is that SA became a shadow of it’s former self, in terms of economic size.

Collections targets are unrealistic for such a tiny (economic) country. Govt service now way too large. Should be at least HALF the size to match this insignificantly small country. SA used to be much bigger. Thank you Zuma & cohorts!! Kindly eplain that to Treasury please.

It is just here where i say there is a clear lack of insight / knowledge / wisdom by the anc of how tax is generated – it is totally obvious if the economy of the country is down the drain directly due to the government’s incapacity to understand how a “free” democratic country’s economy is suppose to operate what the hell do they expect?

The economy down – turnover/net profit down – the taxable income will be also DOWN even if each and every citizen is paying his tax

i suppose sars cant wait for the provisional tax boost at feb month end – they may be in for a surprise due to sa’s government messed up economy

Where will the Revenue shortfall comes from?

Very easy:

There’s R4 trillion of retirement fund assets available for investment in the state’s ‘social development’ (the proverbial elephant in the room that everyone misses, only fixated to tax law changes).

Then you’ll end up paying Income Tax, PLUS part of your pensions will also be used….exactly like a tax.

There was a period where Venezuela was the 4th wealthiest country in Latin America. The same story is slowly written for SA. Beware!

That “rumour that a levy or tax on the transfer of capital or cash outside of SA could be introduced” will be the death knell for FDI.

Like in the Apartheid period, who would want to invest in SA with such capital controls. An exit levy will be a cost to your investment.

The educated tax academics can only propose changes in (higher) tax rates. The answer to increased collection, is a LARGER ECONOMY (…which sadly does not compute with ANC’s policy direction)

Fine. Let taxes can go higher from here 🙁
Treasury even spare a thought how small future collections will become, when the size of SA economy again HALVES in a few years’ time???

These days I am constantly amazed that there are businesses operating here: my electrician arrived after an SMS and did an excellent job; I paid him via online banking in minutes; I buy freshly baked bread and daily delivered greens from Woolies; walk into Cavendish Square or the V&A in Cape Town and you have access to international shopping and can pay with internationally operated credit cards; the power is on and Cape Talk is operating; down the road, they are finalising a major intersection construction and markings are efficiently being painted … etc etc.

How long can this seemingly normal society operate considering the increasing population and debt growth?

But …. I don’t want to imagine what’s going on in less fortunate cities, suburbs and townships though and how long it will take for them to explode when the money runs out.

@beachcomber who wrote “How long can this seemingly normal society operate considering the increasing population and debt growth?”

Yup…in fact, one could ask this exact same question about the inflated world economy in general !

And when this fiat house of cards comes crashing down, what will you be left holding with ….some paper shares that won’t be worth the paper they printed on..?…some money in a bank which can easily be confiscated tomorrow ?

Have you prepared by storing some BTC..?..Gold …?…or will you at the very least be self sustainable somewhere far from the madding crowds if even BTC and gold is not transactable – somewhere off the grid with your own water and food supply ?

Tough one to plan for.

As stated by a lady from BUSA recently, the lack of economic reforms by Government is either due to:
Ignorance by Government
OR
Government does not care about the poor.

Another problem in my opinion is the alarming population growth.

Likely sources of increased tax take:
1. medical tax credit will get serious handbrake
2. increase in the CGT inclusion rate
3. increased focus on transfer pricing on IP and services
4. virtually no relief in bracket creep in the tax tables except at the very bottom
5. a luxury goods VAT or import tax

There are many south africans that are asset rich but income poor, and government wants to get some of that action

What they should be taking a much closer look at is fringe benefit tax on free or below value use of trust assets. That is no different than a distribution of cash which would have been taxed in full as income.

@Johan Buys who wrote “What they should be taking a much closer look at is fringe benefit tax on free or below value use of trust assets.”

Closer look ?????…like SARS hasn’t ordered truckloads of magnifying glasses already

Rather, this is a classic case of Stockholm Syndrome taking place here

Johan, not sure if you operating on behalf of either government or SARS, but you are bewilderingly encouraging concentrating on the hairline crack in the doorstep while the house is on fire !!!

In reality, you should be rephrasing your efforts to something along the lines of:

Dear Mr Government

Kindly refrain from your endless campaign of rampant corruption, looting, stupidity, sheer arrogance, implementation of economic regulations that are strangling the effing lifeblood of our economy, and fostering incomprehensible agenda’s that even a Grade 5 play party would avoid at all costs

For the simple fact remains that no matter how much more tax you attempt to crowbar from this fragile shrinking base, until you sort out your own mess which is the root cause of this sinking ship, you are in effect plugging the Titanic with a tampon

Excuse the pun, but is this SINKING in ????????????

Yours sincerely,

The exhausted South African citizen

End of comments.

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