Godongwana must ‘build trust in economy’
The 2024 budget will have to build trust in South Africa and the economy.
It will require disciplined budgeting, enhanced tax collection, efficiencies, responsible spending and the promotion of sustainable economic growth, to strike a balance between fostering economic development and alleviating the burden on households.
According to Charles de Wet, executive for tax at law firm ENS, recommendations from the medium-term budget policy statement (MTBPS) suggested that government prioritise its efforts on efficiencies of revenue collection by modernising tax systems, deploying artificial intelligence and improving digitisation instead of resorting to tax hikes.
Finance Minister Enoch Godongwana has warned that Budget 2024 will need to propose tax measures to raise additional revenue of R15 billion in the 2024-2025 financial year, starting in April.
Tax collections until the end of November 2023 were less than 2% up on the same period the previous year, but expenditure was 8% higher. While personal income tax and VAT were up by 8% during this period, corporate income tax was down by 14%, confirming the pressure on margins at companies and the downturn in commodity prices that was a windfall in prior years, De Wet says.
While many experts expect an increase in value-added tax (VAT), De Wet does not agree. “A 1% increase in the VAT rate generates approximately R24 billion of additional revenue. This increase could therefore generate more than the R15 billion that the minister indicated was required, but any increase in the rate is linked to demands for further zero-ratings to assist poorer households.”
The current threshold for compulsory VAT registration for companies is R1 million and this was last increased in 2008. De wet says it is likely that the threshold will be increased to at least R2 million.
He does not expect Godongwana to announce an increase in personal income tax and that the highest marginal tax rate for individual taxpayers will remain unchanged at 45%.
Godongwana said at the International Monetary Fund meeting in Davos that hiking personal or corporate tax had not been ruled out, but would prove to be very difficult. However, De Wet says it’s worth noting that any increase in the highest rates would not yield significant revenue, given that only a small number of taxpayers fall in these tax brackets.
“There will be a fiscal drag adjustment to counteract the impact of inflation on taxable income, to achieve balancing of the budget. It is unlikely to be the full inflation adjustment and some of the additional tax required will be recovered through this process. This will be achieved by changes to the tables as well as the rebates that apply,” he says.
There’s been rumours and suggestions of a wealth tax, but De Wet says an increase in the rate for individuals from the current 45% to, say, 50% may not generate significant additional revenue to warrant a change of this magnitude, while there are complexities in introducing a wealth tax.
“Any increases in these rates or the introduction of special levies to tax wealth are therefore unlikely.”
When it comes to sin taxes, De Wet says all excise rates for beer, alcohol and tobacco will increase, at least in line with core inflation.
He expects an inflationary increase as this remains a significant contributor to revenue collected and is a tax that is easy to collect, especially as consumers are already used to high fuel prices.
Regarding carbon taxes, he says the Climate Change Bill has been passed by the National Assembly and transmitted to the National Council of Provinces for concurrence, which would signal that its passing into law is imminent.