Tax short­fall is bad news for the pub­lic – PwC

CityPress - - Business - GER­RIT VAN ROOYEN busi­ness@city­

Govern­ment col­lected so lit­tle tax last year that sig­nif­i­cant tax in­creases in this year’s na­tional bud­get now seem in­evitable.

Tax col­lec­tion from April to De­cem­ber 2015 was “shock­ingly” poor, says Kyle Mandy, PwC South Africa’s tech­ni­cal head of na­tional tax.

He says that aside from cus­toms tax, the col­lec­tion of all other taxes looks fairly poor.

Mandy says PwC is also ex­pect­ing govern­ment’s in­come for the com­ing tax year (from March 2016 to Fe­bru­ary 2017) to be R20 bil­lion less than the amount govern­ment used as a ba­sis for its bud­get frame­work.

PwC’s es­ti­mates are based on the state of cur­rent tax col­lec­tions and as­sump­tions re­gard­ing South Africa’s eco­nomic growth and in­fla­tion for the com­ing tax year.

“Twenty-bil­lion rand is quite sig­nif­i­cant con­sid­er­ing it’s about 0.5% of our gross do­mes­tic prod­uct [GDP]. If some­thing is not done about this, South Africa’s credit rat­ing will be low­ered to junk sta­tus,” says Mandy.

Credit rat­ing com­pany Moody’s also warned this week that poor eco­nomic growth ex­pec­ta­tions could have a neg­a­tive ef­fect on South Africa’s credit sta­tus.

Kristin Lin­dow, se­nior deputy head at Moody’s, warned: “The cur­rent lev­els of taxes and other monies that govern­ment re­ceives falls short of govern­ment’s spend­ing needs by be­tween 3% and 4% of GDP per year.”

In the medium-term bud­get frame­work in Oc­to­ber, Trea­sury was still ex­pect­ing the econ­omy to grow by 1.7% this year.

How­ever, econ­o­mists do not ex­pect the coun­try to reach this tar­get at all, and the World Bank this week also low­ered its fore­cast for South African growth this year to a mea­gre 0.8%.

Pro­fes­sor Jannie Ros­souw, head of the Univer­sity of the Wit­wa­ter­srand’s School of Eco­nomic and Busi­ness Sci­ences, says: “The lower growth fore­cast for 2016 means that the tar­gets that were set in the medium-term bud­get frame­work of 2015 for the tax year 2016/17 prob­a­bly won’t be reached.

“Govern­ment has to cut down on ex­pen­di­ture to spend less than cur­rently pro­posed by the medium-term bud­get frame­work, and the pub­lic should ex­pect tax in­creases,” adds Ros­souw.

Mandy says tax in­creases will, in gen­eral terms, be bet­ter for the econ­omy than junk sta­tus.

Ac­cord­ing to him, PwC is ex­pect­ing sig­nif­i­cant in­creases in per­sonal tax and the gen­eral fuel levy to be an­nounced in the na­tional bud­get.

San­isha Packirisamy, econ­o­mist at MMI, says poor growth, low lev­els of job cre­ation, high lev­els of debt and ris­ing in­fla­tion will likely cur­tail col­lec­tion of VAT and per­sonal tax in the com­ing year.

VAT and per­sonal tax each con­trib­uted around 36% to the to­tal tax rev­enue in the 2014/15 fi­nan­cial year.

“Low com­mod­ity prices, and weak lo­cal and in­ter­na­tional de­mand, cause risks for the col­lec­tion of com­pany tax,” says Packirisamy.

She is of the opin­ion that tax col­lec­tion from April to De­cem­ber wasn’t that bad.

She says the bud­get deficit for 2015/16 might even be a lit­tle smaller than the cur­rent ex­pec­ta­tion.

But this will only be the case if tax col­lec­tion in the next three months is just as good.

Wayne McCur­rie, chief port­fo­lio man­ager at Mo­men­tum Wealth, says he doesn’t think this will hap­pen.

“I think a part of the tax col­lec­tion re­flects an in­crease in sales due to peo­ple be­ing scared of ris­ing prices this year, and it is there­fore not sus­tain­able,” he says.

Peter At­tard Mon­talto, an­a­lyst at in­vest­ment group No­mura, says the mar­kets haven’t yet grasped that the credit rat­ings agen­cies, es­pe­cially Stan­dard & Poor’s, in­tend to down­grade South Africa in the medium term to junk sta­tus.

“It’s not due to some­thing be­ing wrong in the bud­get per se, but be­cause of the poor lo­cal eco­nomic out­look and an un­friendly in­vest­ment cli­mate,” says Mon­talto.

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