JOHANNESBURG – Finance minister Nhlanhla Nene will probably announce changes to a range of tax categories to raise the additional taxes government needs, tax experts argue.
Government is under pressure to collect more revenue as economic growth continues to disappoint. Ratings agencies have also been keeping a watchful eye on South Africa’s fiscal health.
Speaking at a Deloitte roundtable, Nazrien Kader, managing partner for Deloitte Taxation Services Africa, said raising taxes is going to be unpopular, but it is going to happen.
But what options will the minister likely have considered before he tables his budget in Parliament on February 25?
Kay Walsh, economic consulting leader at Monitor Deloitte, said last year the main sources of revenue for the fiscus were personal income tax (35%), value-added tax (26%) and corporate income tax (20%).
Nene already announced that government would need to raise at least R27 billion in additional tax revenue over the next three years, which equates to around R9 billion per annum.
But what would the impact be if this tax revenue were raised from a single source?
In the case of VAT, it would have to be raised by 4%, which amounts to an increase in the VAT rate from 14% to 14.5%.
“But given that Treasury has already said that they would enhance the progressive nature of the fiscal system that is not a very likely option,” Walsh said.
VAT is generally considered to be a regressive tax that disproportionally affects the poor, she said.
It is also somewhat premature to talk about a VAT rate increase before the Davis committee has completed its work in this regard, Severus Smuts, director, added.
If the additional funds were raised from personal income taxes, a 3% increase in personal income tax collections would be required to raise R9 billion a year, Walsh said.
But it seems the general trend is to try and tax capital instead of income.
“If you look at what’s happening under the Obama administration in the US, the emphasis has been on trying to tax the capital of the very wealthy rather than to tax income, which tends to disproportionally affect the middle class because that’s where all the salary earners are.”
But with no real changes having been announced to policy, it is difficult to speculate what exactly that might look like, Walsh said.
Bernadette Abbott, personal tax specialist, said while government has the option of increasing capital gains tax, striking a balance would be important.
There is a point where high net worth individuals (HNWI) would be disincentivised to stay in the country and might choose to take their money and rather invest it in a lower cost nation.
Abbott said there has been a lot of focus on HNWI and the South African Revenue Service (Sars) has been doing a very good job of scrutinising the existing HNWI base. However, there is uncertainty about the work being done on people who might still be outside the revenue authority’s net.
But while there has been much speculation around potential tax hikes, it is also important that the budget should drive the right behaviour.
Nazeer Essop, public sector leader, said the majority of the education budget of around R265 billion goes towards salaries of teachers and staff.
But the critical question is whether taxpayers are getting value for this money.
Essop said the education system is rated quite poorly when benchmarked against its global peers.
There is also a significant concern that South Africa is becoming dependent on social grants, he said.
The number of people receiving social grants has increased considerably and includes about 15 million people.
Essop said around 11 million of these grants go towards child support programs.
Many teenagers are falling pregnant – some of them while still in school – just to collect the social grant. The grant is driving the wrong behaviour, he said.
Against this background the budget is very important to drive the right culture, behaviour and attitude in the country, he said.
Essop said of the total budget of around R1.2 trillion about 40% is spent on salaries.
But if government does not have a performance management or consequence management system, how do you get rid of non-performing employees? he asked.
“It’s almost like you get a guaranteed job for life, you get guaranteed income for life and you can sit and do as you like.”
If is important that measures be put in place to ensure taxpayers get value for their money and wastage is removed from the system, he argued.