SA faces tough tax decisions

5 BIGGEST POTENTIAL: REVENUE-GENERATING CHANGES

SA faces a R50.8 billion hole in its finances.

With growth lagging that of peers after its second recession in less than a decade, SA’s tax collections have dwindled. That’s intensified the difficulty faced by Finance Minister Malusi Gigaba in striking the balance between finding more revenue and not choking off SA’s fragile recovery.

In October, his officials estimated public debt will exceed 60% of gross domestic product by 2022. The next month, the government pledged to cut spending by a further R25 billion over the next three years to avert another downgrade of its rand debt to junk.

Since then, Moody’s has warned it might deliver just such a ratings cut, and an uncosted pledge by former president Jacob Zuma for free higher education for poor students added R12.7 billion to SA’s financial needs.

These are the five biggest potential revenue-generating tax changes the minister may announce at Wednesday’s budget. 1. Value-added tax SA could collect as much R22 billion if it raises the rate of value-added tax by 1 percentage point to 15%, PwC estimates. It would be the first change since 1993. Removing the zero rating on fuel purchases could bring in another R3 billion, according to Citigroup Inc. Six of 10 respondents in a Bloomberg survey expect to see an increase in the rate.

“Being a regressive tax, it has been avoided for political reasons,” Frank Blackmore at EF Consult said. But it is a “definite possibility” given the country is running out of other revenue-generating options.

2. Medical-insurance tax credits

Health Minister Aaron Motsoaledi in July released a health-insurance policy document that said he wanted to remove the tax credit to users. This is to fund the proposed National Health Insurance plan. Taking the benefit away could add almost R20 billion.

3. No relief in personal-tax

If the Treasury chooses not to adjust tax brackets to compensate for inflation, government could reap R15 billion in additional revenue, Citigroup said.

4. Raising the top income-tax rate

Increasing this from 45% may bring in as much as R10 billion, depending on the new rate, Citigroup says. The levy affects about 103 000 people who earn more than R1.5 million annually and was raised from 41% in the year that ends in February. The move would send “the right signal” in one of the world’s most unequal nations, Nedbank’s Dennis Dykes said.

5. Sugar tax

One thing that Treasury has in its favour is a tax on sugary beverages, which Zuma signed into law in December. That may add as much as R11 billion to government coffers, Citigroup estimated.