Tax increase appears inevitable, but a raise would trigger undesired consequences
Tax hikes inevitable – experts
WHILE raising value added tax (VAT) by 1 percentage point could rake in R15 billion of the R28bn the National Treasury said it required in additional tax revenue, Finance Minister Pravin Gordhan is unlikely to take that route when he tables the 2017/18 Budget later this month.
Professional services firm Deloitte yesterday said that while tax increases appeared inevitable, a 1 percentage point increase in VAT would have undesired consequences for an economy that was struggling.
“This would have the consequential impact on the reduction of 0.2 percent to 0.4 percent of the gross domestic product as well as an increase in inflation,” Nazrien Kader, the head of taxation services at Deloitte Africa, said.
In his Medium Term Budget Statement speech last year, Gordhan said the fiscus was projected to collect R23bn less revenue than the February 2016 Budget estimations.
Gordhan also said the economy was expected to grow by 1.3 percent this year and by 2 percent in 2018. He further announced that the Treasury planned to cut the expenditure ceiling by R26bn and increase tax collection by R43bn over the next two years.
Kader said that it was a foregone conclusion that the government would have to hike taxes.
“The 2017/18 Budget would need to raise additional tax revenue by about R28bn; this is after the expenditure ceiling was reduced by R10bn. This means tax hikes across the spectrum of taxes is a must.”
Ian Cruickshanks, the chief economist at the SA Institute of Race Relations, said he expected broad-based taxes to be announced as a way to avoid borrowing, as the market would be less prepared to lend to the government, given the current economic situation.
“It is really going to be a tough Budget. Rather than borrowing the money, which will be at a higher rate than it has been in previous years, the Treasury would likely hike most of the taxes,” Cruickshanks said.
Kader said there were several additional revenue cards Gordhan could play.
She said the Treasury could get between R3bn and R5bn in wealth taxes, about R11bn in sugar tax and R9bn in sin taxes, arguing it was highly unlikely that company tax would be increased from its current 28 percent.
Kader, however, said companies ought to expect more vigorous enforcement as the government sought to curb base erosion and profit shifting and the widening tax gap.
Azar Jammine, the chief economist at Econometrix, said while increasing the VAT rate would be an easier option for the minister, it was highly unlikely he would opt for it.