Scraping the barrel
BUDGET: MORE TAX INCREASES NOT AN OPTION, SAY EXPERTS
Government needs to caution against increasing capital flight out of South Africa.
It is difficult to imagine which pot Finance Minister Tito Mboweni is going to scrape out in order to find money to fund government expenses when he presents the 2021 budget on Wednesday.
Tax increases could have been one such pot, but any attempt by government to introduce a wealth or solidarity tax now is likely to be met with strenuous opposition.
Tax experts Joon Chong and Wesley Grimm from law firm Webber Wentzel warn that it would contribute to increased levels of capital flight, tax avoidance and tax evasion.
“In our view, instead of increasing taxes or introducing new tax types, government should rather consider bolstering property rights, reducing the bloated public service wage bill, addressing serious crime like murder, rape and robbery as well as gender-based violence, cutting wasteful expenditure, and halting the widespread abuse and theft of state resources,” they said in a statement.
“Any further attempt by government to tax South Africa into prosperity will fail as the already highly taxed and narrow tax base has insufficient resources to improve South Africa’s fiscal position,” they added.
The country had been suffering from inequality, poverty and high levels of unemployment even before the government introduced its Disaster Management Act to “manage” the coronavirus pandemic.
“Coupled with the economically crippling and seemingly unending Covid-19 regulations, looting of state coffers and bureaucratic paralysis within the South African Revenue Service’s collection function, [this] has created a desperate situation for National Treasury,” said Chong and Grimm.
Yolandi Esterhuizen, tax practitioner and director at Sage Africa & Middle East, also paints a picture that most South Africans are all too familiar with: massive job losses, business closures and billions in tax revenue that has been lost because of the alcohol and tobacco sales bans during the Covid-19 lockdown.
Expenditure first started surpassing revenue around 2009 – around the time former president Jacob Zuma was elected – and increased from R156 billion in 2016-17 to an expected R370.5 billion for the 2021-22 period.
Despite several tax increases over the years, it has not resulted in increased revenue collections.
Keith Engel, chief executive of the South African Institute of Tax Professionals, said there were signs of economic revival that may ease the pressure slightly.
Revenue returns have been higher than expected in the last couple of months, narrowing the expected deficit considerably.
“Therefore, I expect the budget to be largely within the status quo, possibly with little or no tax increases.”
However, there may be no relief for bracket creep and slight adjustments to the fuel levy and excise and custom duties.
Engel expects that some announcements will again be kicked down the road for another year, such as a digital service tax and a wealth tax.
Esterhuizen also expects the implementation of a solidarity wealth tax “soon” but, at the same time, expresses reservations because of the cost and complexity of administering such a tax.
Chong and Grimm say although it is possible that National Treasury could introduce a new, lower tax bracket to widen the tax base, it is more likely that high income earners will be expected to carry a heavier tax burden.