Analysts and economists are detailing their predictions for finance minister Tito Mboweni’s finances speech on 24 February, with a specific give attention to taxes.
The February finances usually centres across the authorities’s income assortment efforts, with the medium-term finances coverage later within the yr – round October – homing in on expenditure.
With the onset of the Covid-19 pandemic final yr, the 2020 finances was largely out of whack with the realities introduced by the outbreak and the nationwide lockdown, ensuing within the tabling of the ’emergency’ finances in June.
The brand new finances has left the fiscus in a susceptible place, with Nationwide Treasury anticipated to file a finances deficit of at the least 14%, and tax income being round R312.8 billion decrease than projections at first of the 2020/21 monetary yr.
Added to this, the finance minister wants to seek out methods of funding quite a few pressing tasks – corresponding to Covid-19 vaccines and prolonged monetary aid – whereas additionally discovering options to plug the nation’s rising debt.
These ‘new’ issues exacerbate the elemental weaknesses and rising bills already current within the finances earlier than the Covid disaster hit – corresponding to state firms in monetary misery needing bailouts, and the federal government wage invoice making up over a 3rd of all expenditure.
Whereas authorities has made some commitments to chop spending – most notably a R160 billion lower to the wage invoice over a number of years – it additionally must discover a option to enhance income. Right here, Treasury has mentioned it’ll elevate R40 billion by taxes over the subsequent three monetary years – the primary R5 billion of which will probably be raised in 2021/22.
This has its personal issues tied to it, nevertheless.
In accordance with Mike Teuchert, Nationwide Head of Taxation at Mazars, the nation’s tax base has shrunk considerably during the last yr. That is partly because of skyrocketing unemployment charges, but in addition because of the authorities’s personal interventions within the financial system round lockdown, together with alcohol and tobacco product bans.
With the tax base already beneath excessive strain, Teuchert doesn’t see Mboweni saying main tax will increase or new taxes.
“Whereas we count on that some tax modifications will probably be introduced, the financial system can’t actually tolerate them. I imagine that Treasury understands this as properly,” he mentioned.
“Whereas it implies that the nation will most likely have to borrow extra, there ought to at the least be a possibility for companies working in South Africa to rebuild and begin rising the financial system once more off the again of a turbulent yr.”
The potential of a number of new taxes and tax hikes have been talked about within the lead as much as the finances, together with the ever-present ‘risk’ of latest wealth taxes within the higher-earning inhabitants.
Nevertheless, not all of those taxes could also be viable, and even obligatory, given the context of the finances. Perception from Intellidex analyst, Peter Attard Montalto, lays out what we are able to count on from the tax facet of the finances.
Adjusted tax brackets – doubtless
In accordance with Attard Montalto, Nationwide Treasury is unlikely to step past its objectives of elevating R5 billion in extra tax income this yr. This may be completed by commonplace tax margin changes – round one share level beneath inflation.
The important thing reasoning behind this, he mentioned, is that tax hikes typically gained’t work because the nation stays over the height of the Laffer curve – that means vital tax will increase will doubtless result in decrease assortment.
Larger sin tax – doubtless
Together with bracket creep, changes to sin taxes might additionally assist authorities meet its R5 billion goal, Attard Montalto mentioned.
Wealth taxes – presumably
Speak of a direct tax on the rich in South Africa has been over-played, in keeping with Attard Montalto, with little anticipated exterior of adjusted tax brackets.
Tax consultants at authorized agency Webber Wentzel mentioned that, though it’s potential that Nationwide Treasury might introduce a decrease tax bracket to widen the tax base, it’s extra doubtless that the upper earnings earners will proceed to shoulder the burden of elevated private earnings tax charges.
This might imply these incomes over R750,000 a yr see their tax charges improve by between 2% and three%.
Webber Wentzel mentioned that capital good points tax (CGT) might be a goal. The CGT inclusion charges are at present 40% for people and particular trusts, 80% for firms and 80% for different trusts.
“These CGT charges had been launched on 1 March 2016 and Nationwide Treasury might now contemplate it’s time to tax the total capital acquire realised on the disposal of belongings, in sure cases,” it mentioned.
Attard Montalto famous that any actions or hikes in conventional taxes on the rich – corresponding to a restructuring of inheritance tax – will probably be designed extra as a redistributive measure than a pure income elevating measure.
Vaccine tax – unlikely
It was beforehand steered that the federal government might look to a particular ‘vaccine tax’ to assist pay for the procurement and distribution of Covid-19 vaccines. Nevertheless, with higher-than- anticipated revenues collected in December, that is doubtless not obligatory.
Attard Montalto mentioned that discuss of a vaccine tax is “large off the mark”.
“We expect it was doubtless designed extra to drive dwelling the notion of a tough fiscal atmosphere,” he mentioned.
Mining tax – unlikely
There has additionally been discuss of a one-off mining super-tax – once more that is seen as unlikely.
“Whereas the business is dealing with a large Phrases of Commerce boon, in quantity phrases issues are weak, as is funding and jobs development which Nationwide Treasury will probably be extra eager on encouraging,” Attard Montalto mentioned.
Digital tax – unlikely
Plans are already afoot to introduce taxes on digital services and products offered in South Africa – nevertheless, that is unlikely to manifest within the near-term.
That is largely as a result of the federal government is ready for consensus from the OECD, Attard Montalto mentioned, which can solely be reached in the midst of the yr.
Digital tax might very properly be talked about within the October MTBPS, however so far as implementation goes, a public remark course of and authorized framework will solely see it prepared round 2023, he mentioned.
VAT – unlikely
South Africa hiked its VAT price to fifteen% in 2018. Whereas this helped attract some tax income, it was not a preferred transfer amongst residents and companies, and never one the federal government will probably be working to once more so quickly.
Nevertheless, South Africa’s VAT price remains to be decrease than many different nations, and a potential future hike will not be off the playing cards.
Whereas unlikely to be a factor within the 2021 finances, Attard Montalto mentioned it might be pulled out of presidency’s bag of tips for one thing just like the NHI sooner or later.