5 tax queries to watch out for

OPTIMISM ABOUNDS: BUT FISCAL ENVIRONMENT STILL TOUGH AS SA PREPARES FOR BUDGET

High-income earners will likely bear the brunt of the additional taxes.

We don’t expect lowor middle-income taxpayers to see much (individual tax) damage, says Kyle Mandy.

Treasury’s under pressure to introduce tax hikes and austerity measures in the upcoming budget, without stifling growth.

Below are five questions of interest on Wednesday. 1. Has the fiscal position deteriorated?

PwC expects the budget deficit to reach about R250 billion, versus the Medium-Term Budget Policy Statement (MTBPS) number of R203 billion.

PwC SA’s Kyle Mandy says there’s a sense tax revenue numbers are slowly turning a corner. The MTBPS projected tax revenue would fall short of the budget estimate by almost R51 billion in 2017/18. PwC currently estimates it’ll be closer to R50 billion.

But there are some serious fiscal challenges, he adds. The finance minister will be looking to introduce R30 billion worth of tax increases – not including funding free higher education or National Health Insurance start-up costs.

The table sets out PwC’s projections of possible gross tax increases: 2. Will personal income tax increase?

There’s growing concern about the relatively small tax base and the economic impact of further personal income tax hikes. There’s also a risk further increases may not result in additional revenues, due to compliance deterioration.

PwC doesn’t expect a new super tax bracket for high-income earners to be introduced or for tax rates to be increased. However, Treasury may still collect a sizeable portion of revenue by taxing inflationary salary adjustments (fiscal drag).

Mandy expects Treasury to provide some fiscal drag relief – particularly for lower-income earners.

Hence, it would probably only collect between R5 billion and R8 billion in additional revenue through fiscal drag.

High-income earners will likely bear the brunt of the additional taxes, an increase in the CGT inclusion rate and tax reform of trusts and estate duty.

3. Will the VAT rate be increased?

The bulk of additional tax revenues will need to be raised from VAT, Mandy argues.

A one percentage point increase in the VAT rate to 15% would raise roughly R22 billion in additional tax revenues.

He estimates government would have to spend about R5 billion of the R22 billion on increased social spending to make a VAT hike more politically feasible.

4. Will a wealth tax be introduced?

Mandy says various forms of wealth taxes are being considered – from an annual net wealth tax to land taxes and national taxes on land and buildings – but he doesn’t expect an annual net wealth tax.

5. Will Moody’s be satisfied?

“All things being equal – given that the outlook has improved – if we play the next couple of weeks right, I don’t think Moody’s will downgrade us,” PwC Africa’s Lullu Krugel says.