A lot of pain seen in budget 2017

TAXPAYER BURDEN: WILL HAVE TO SHOULDER ANOTHER R28BN Government spending ambitions, it would appear, are non-negotiable. That means taxpayers are going to have to give more, the experts say.

Taxes in this year’s budget will test taxpayers’ pain tolerance as Joe Average is leaned on to fund most of the additional R28 billion needed to balance government’s books.

Kyle Mandy, tax partner at PwC, says the “volatility” of the monthly tax collection data makes any projections on where the final collection numbers will end very difficult.

He says things are going to be tough on taxpayers.

Big, slow-moving target

He expects an increase across all personal income tax brackets, except perhaps the lowest bracket (18%), of one percentage point. This will increase the top marginal tax rate for individuals to 42%, filling the revenue hole with at least R15 billion.

Finance Minister Pravin Gordhan will deliver the budget on February 22.

Nazrien Kader, head of Deloitte tax services in Africa, says lifting the top marginal rate to 45% could yield R3.5 billion. It is also “conceivable” that a special levy or surcharge may be applied to earnings above a set threshold.

“This is also likely to apply to companies based on turnover as a means to collect some tax from companies when profits are non-existent,” says Kader.

Andrew Wellsted, tax head at Norton Rose Fulbright, says with the economy dragging its heels, taxpayers struggling to make ends meet and companies not coining it, Value Added Tax may come to the fore. An increase of 1% or even 1.5% to 15.5% may have a significant impact on tax collections.

Kader notes the VAT rate is much lower than the 20% in most other jurisdictions. The Davis Tax Committee reported that an increase to 15% will bring SA in line with the global average of 15.65% and the African average of 15.25%.

This can yield revenue of between R15 billion and R20 billion. Mandy says an increase is possible, provided there is relief to the poor through an increase in social grants, or a widening of zero-rated goods. But, given possible political fallout of a VAT increase, a hike in the fuel levy might be an option. A 50c/l increase may yield around R10 billion, says Mandy. Although VAT or fuel increases will boost inflation, it will be less “distortionary” than an increase in direct taxes.

Direct tax increases impact savings and consumption, negatively impacting economic growth. An increase in consumption taxes only impacts spending.

The carbon and sugar taxes are not expected to be finalised soon.

'Unsustainable policy'

Erika de Villiers, head of tax policy at SAIT, says increasing the tax burden to balance the books is an unsustainable policy.

“How much could an old-age pension government grant, which often has to support a family, really buy even if it is increased from R1 510 to say R1 600? Government should look at tightening its spending further to address the budget deficit.”