Harsh realities awaiting SA
Country faces economic recessions and depressions.
Moneyweb
Economic depressions and recessions have two phases – shocked and post-shocked. In the first phase, governments do everything just to keep the wheels turning, and in the second the debt repayment nightmares start.
Finance Minister Tito Mboweni will be delivering an “emergency budget” later this month. The impact of the threemonth Covid-19 choke on economic activity will be spelt out.
It is going to be extremely difficult to crawl out of this pit SA finds itself in, says Ferdie Schneider, head of STA Konsult and newly appointed chair of the South African Institute of Tax Professionals (Sait).
He says government has been trying to keep the economy going using two measures – fiscal (grants, incentives and relief schemes) and monetary (bond buybacks and interest rate cuts). However, he believes that if the lockdown continues these measures will be of little consequence.
The economy will remain smothered.
He notes that economic growth in February was estimated at less than 1%. Economic modelling by National Treasury now indicates that the economy may contract between 5% and, in the worst case scenario, 16%.
If the worst case plays out, the South African Revenue Service (Sars) estimates that the revenue loss for this year could be as much as R285 billion, Sars commissioner Edward Kieswetter said in an earlier television interview.
Pieter Janse van Rensburg, associate director at AJM Tax, says in the February budget, Treasury made three proposals to expand the corporate tax base.
He believes two of them will have to be put on ice – the restriction on the offset of assessed losses carried forward to 80%, and the proposed scrapping of some business incentives following a Treasury review on the effectiveness of incentives. .
Sait CEO Keith Engel says businesses are on their knees. SA is going to experience many bankruptcies in the next 18 months. “There will come a time when people will feed themselves before paying Sars,” he says.