The tax announcements in this year’s budget will test the
pain tolerance levels of all taxpayers.
Direct and indirect tax increases are a must, and by the
looks of things Joe Average is going to fork out the largest chunk of the
additional R28 billion needed to balance government’s books.
As though things are not bad enough going forward, it
appears that 2016 is going to end on a worse note than earlier anticipated. Tax
experts now anticipate the revised anticipated tax shortfall of R23 billion to
increase by another R7 billion.
Kyle Mandy, tax partner at PwC, says the “volatility” of
the monthly tax collection data makes any projections on where the final
collection numbers will end very difficult.
He says, starting from a lower than anticipated base,
with a huge revenue target in a slow-growth economic environment things are
going to be tough on taxpayers.
Mandy expects an increase across all personal income tax
brackets, except perhaps the lowest bracket (18 percent), of one percentage
point.
This will increase the top marginal tax rate for
individuals to 42 percent, filling the revenue hole with at least R15 billion.
Finance Minister Pravin Gordhan will be delivering the
budget to Parliament on February 22.
Nazrien Kader, head of Deloitte tax services in Africa,
says lifting the top marginal rate to 45 percent could yield R3.5 billion. It
is also “conceivable” that a special levy or surcharge may be applied to
individuals with earnings above a set threshold.
Read also: #Budget2017: Tax hikes likely to plug R28bn hole
“This is also likely to apply to companies based on
turnover as a means to collect some tax from companies when profits are
non-existent,” says Kader.
Other options
Andrew Wellsted, tax head at Norton Rose Fulbright,
expresses scepticism about the success of bridging the revenue gap by upping
individual and even company tax rates.
He says, with the economy dragging its heels, taxpayers
struggling to make ends meet and companies not coining it, it is a good time to
consider an increase in the Value Added Tax rate. An increase of 1 percentage
point or even 1.5 percentage points to 15.5 may have a significant impact on
tax collections.
Kader notes that the South African VAT rate is much lower
than the 20 percent seen in many other jurisdictions. The Davis Tax Committee
reported that an increase to 15 percent will bring South Africa more in line
with the global average of 15.65 percent and the African average of 15.25
percent.
This can yield revenue of between R15 billion and R20billion.
Mandy says an increase is possible, provided there is relief to the poor in the
form of an increase in the social grant allowance, or a widening of the zero
rated goods.
Both these relief measures are possible and practical to
implement in a short time frame. However, given the possible political fallout
of a VAT increase, a significant increase in the fuel levy might be another
option. A hefty 50c/l increase may yield around R10 billion, says Mandy.
Although an increase in any of these two taxes (VAT or
fuel levy) will have an inflationary effect on the economy, it will be less
“distortionary” than an increase in direct taxes.
Direct tax increases impact savings and consumption, with
people having less after-tax money to save and to spend. This negatively impact
on economic growth. An increase in consumption taxes only impacts spending.
Some behavioural-changing taxes such as the proposed
carbon tax is expected to be delayed with another year and the sugar tax on
sweetened drinks is not expected to be finalised soon.
Mandy does not foresee huge revenue coming from increases
in wealth taxes such as estate duty and donations tax.
Factors that may be impacting future collections are low
economic growth, continued high levels of corruption and wasteful expenditure
in all spheres of government and political instability.
Erika de Villiers, head of tax policy at SAIT, says it is
not sustainable to increase the tax burden to balance the country’s books.
Lower economic growth and increased inflation will hit
the poor and vulnerable hard.
They already suffer the effects of unemployment and high
food and transport prices, she says.
“How much could an old age pension government grant,
which often has to support a family, really buy even if it is increased from R1
510 to say R1 600? Government should look at tightening its spending further to
address the budget deficit.”
Wellsted says it is crucial for the focus to remain on
the prevention of corruption and waste. The maintenance of a modern, efficient
and trusted revenue collection service with integrity is vital. Without that
South Africa will see the lack of compliance seeping in.
The South African Revenue Service and Finance Minister
Pravin Gordhan are well aware of the impact of these factors on the risk of the
tax gap increasing.
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