Tax ex­perts pre­dict the 2016 highs and lows

Deloitte an­a­lyst says tax re­form is a sure way to stim­u­late the coun­try’s flail­ing econ­omy

CityPress - - Front Page - XOLANI MBAN­JWA xolani.mban­jwa@city­

Tax ex­perts say Fi­nance Min­is­ter Pravin Gord­han may an­nounce higher-than-ex­pected tax col­lec­tions next month when he de­liv­ers his bud­get speech, while sin taxes may out­strip the in­fla­tion rate and in­tro­duce the much-awaited car­bon tax.

The tax team at Deloitte also ex­pects per­sonal taxes to shoot up by 1%, and for a levy on com­pa­nies that have a turnover above R1 bil­lion to be in­tro­duced.

The team held a round ta­ble dis­cus­sion this week in an­tic­i­pa­tion of Gord­han’s bud­get speech on Fe­bru­ary 24, and said they es­ti­mate tax rev­enues to be higher than the pro­jected R1.2 tril­lion col­lec­tions for 2015/16.

The tax ex­perts said that al­though the tax re­view com­mit­tee, known as the Davis Tax Com­mit­tee, rec­om­mended an in­crease in VAT, Gord­han was likely to leave it un­touched be­cause an in­crease could fur­ther an­tag­o­nise trade unions, which are up­set about the Tax Ad­min­is­tra­tion Laws Amend­ment Act, which in essence phases out prov­i­dent funds as some­thing dif­fer­ent from pen­sion funds.

Nazrien Kader, man­ag­ing part­ner for tax­a­tion ser­vices at Deloitte, said no fi­nance min­is­ter had pre­vi­ously been un­der so much scru­tiny from all ob­servers be­cause ex­pec­ta­tions are high for Trea­sury to im­prove the coun­try’s per­for­mance and stim­u­late growth.

“I go as far as to say no South African fi­nance min­is­ter has ever had to walk a tightrope of this na­ture. Gord­han has promised to sur­prise his crit­ics. That con­fi­dence is quite con­ta­gious. He sounds like he has a plan, and I think what’s dif­fer­ent about it this time is that he ac­tu­ally sounds like he has the back­ing of govern­ment to ex­e­cute his plan,” said Kader.

Gord­han was also un­der pres­sure to demon­strate how quickly govern­ment could im­ple­ment the in­cen­tives and grants aimed at boost­ing for­eign di­rect in­vest­ment.

The fore­cast by the In­ter­na­tional Mon­e­tary Fund, which re­vised down South Africa’s eco­nomic growth pro­jec­tions to be­tween 0.7% and 0.9%, far below the es­ti­mated 2% rate, low com­mod­ity prices, the volatile rand and an econ­omy that was bor­der­ing on a re­ces­sion, low sav­ings, an in­creased govern­ment wage bill and food in­fla­tion brought on by the drought, had cre­ated a “near-per­fect” storm, said Kader.

“It is per­haps the per­fect time to launch re­form, and tax re­form is one sure way to stim­u­late the econ­omy. quickly the ben­e­fits of th­ese in­cen­tives and grants of­fered through tax are felt,” said Kader.

But if Gord­han in­tro­duced tax hikes on per­sonal in­come and goods, tax­pay­ers would de­mand that he demon­strate how govern­ment would spend the ex­tra cash ef­fi­ciently, par­tic­u­larly at mu­nic­i­pal level.

“We are also ex­pect­ing spend­ing ef­fi­cien­cies on the part of the govern­ment by avoid­ing waste­ful ex­pen­di­ture, a zero-tol­er­ance ap­proach to cor­rup­tion in the pub­lic sec­tor, a more ef­fi­cient mu­nic­i­pal rates sys­tem to col­lect rev­enues and an over­all cul­ture of thrifti­ness,” said Kader.

Billy Jou­bert, tax di­rec­tor and trans­fer pric­ing leader, said any in­crease on VAT would be cou­pled with tax ex­emp­tions on food­stuff, and some of the money may go to the Na­tional Health In­sur­ance scheme or univer­si­ties to ap­pease the #FeesMustFall move­ment.

“I don’t think there will be an in­crease on cor­po­rate in­come tax be­cause govern­ment should think about cut­ting it to at­tract for­eign di­rect in­vest­ment. A wealth tax would be pre­ma­ture, but I don’t think VAT will in­crease this year,” said Jou­bert.

Izak Swart, di­rec­tor of car­bon tax at Deloitte, said he ex­pected Gord­han to an­nounce strate­gic govern­ment in­ter­ven­tions to ac­cel­er­ate eco­nomic growth.

“Some easy in­ter­ven­tions would be to en­hance cur­rent in­cen­tives of­fered by the depart­ment of trade and in­dus­try to ac­cel­er­ate the im­ple­men­ta­tion of the Spe­cial Eco­nomic Zones Act,” said Swart.

He said that al­though a car­bon tax could add an ex­tra R20 bil­lion to the fis­cus, he be­lieved govern­ment should post­pone its im­ple­men­ta­tion to al­low in­dus­try and govern­ment to fully un­der­stand the ef­fect a car­bon tax would have on the econ­omy.

Al­though South Africa was fac­ing mount­ing pres­sure to in­tro­duce the tax af­ter COP21 in Paris and the UN con­fer­ence on cli­mate change agreed to price car­bon, while the World Bank said 12% of the world’s emis­sions were sub­ject to tax, Swart did not be­lieve South Africa was ready to im­ple­ment it.

“The car­bon tax pro­posal is com­pli­cated and would need emit­ters to find ap­pro­pri­ate mea­sure­ment cri­te­ria to deal with the com­pli­ance re­quire­ments of the pro­posed tax,” said Swart.

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