SA’s taxing finances

HAS THE COUNTRY’S ECONOMIC ENVIRONMENT DETERIORATED? Commentators don’t expect significant hikes, but the election may delay reforms and budget cuts.

So has the economic environment deteriorated enough since October to force Treasury’s hand?

While politicians will want to avoid tax hikes in an election year, an indication that government has lost its commitment to fiscal consolidation could trigger more credit rating downgrades, further pressurising South Africa’s finances.

There seem to be early indications that the economy will remain under pressure this year. The World Bank recently lowered its economic growth forecast for South Africa from 1.8% to 1.3%.

Kyle Mandy of PwC SA says it’s a bit early to make predictions around tax hikes. Revenue collection data is only available until end November. “That said, it does look like there has been some slippage, if you like, in terms of the revenue performance in October and November.”

However, it’s still possibile that the situation could turn around over the next few months. It doesn’t look like South Africa will see the type of shortfalls experienced during the last couple of years, especially once the VAT refund issue has been addressed, Mandy adds. It doesn’t look like there will be any horrible surprises in the budget, but it also doesn’t look like government’s on track to meet the mini-budget’s revised forecasts, unless something changes in the next few months, he says.

Keith Engel of the SA Institute of Tax Professionals says the economic environment has deteriorated somewhat, but tax increases seem unlikely.

The real money comes from increases in indirect taxes like VAT, but such steps would outrage ANC voters.

Income tax hikes will either chase away investment or not result in additional tax.

Rather, there will be a focus on improved Sars revenue collection.

Government’s real challenge is tackling expenditure.