This will be a watershed year for tax hikes, as South Africa faces sluggish economic growth, continuing electricity supply challenges, growing water shortages, a commodity price slump and rising inflation.
These factors would strongly influence Finance Minister Pravin Gordhan’s budget speech on February 24, Deloitte Africa taxation services head Nazrien Kader pointed out at a media roundtable on Wednesday.
“Never before has the level of interest of ‘armchair’ budget observers been this piqued, nor have South Africans ever expected this much from a Finance Minister,” she said, adding that Gordhan’s biggest challenge would be to generate taxes without further hampering economic growth or exacerbating inequality.
She further noted that it was highly likely that the marginal rate of tax for individuals could be lifted to the late 1980s level of 45%, noting that there was also scope to increase the capital gains subject to tax, currently at 33%.
Hikes could also potentially be implemented on the fuel levy, sin taxes, customs and global trade tariffs on luxury items and ad valorem duties – with increases expected to be “far higher” than inflation rates.
However, Kader warned that it was too premature to implement a so-called wealth tax and that it was also highly unlikely the value-added tax would be increased, as there had already been an emotive response to such proposals.
She added that the expected tax hikes would lead to greater expectations from taxpayers regarding spending efficiencies and a zero tolerance approach to corruption in the public sector.
Also speaking at the roundtable, Deloitte Southern Africa public sector leader Nazeer Essop said there were many opportunities for government to cut costs and lessen the burden on the taxpayer.
“We believe Gordhan will ask public servants to curtail costs and will link pay to performance,” Essop pointed out, adding that it could further cut public servants costs, currently at R450-billion, by modernising human resources processes, such as doing away with the manual system of employee files.
Further, he suggested that the R64-million a year being paid to suspended employees by national government should be stopped immediately.
CARBON TAX WOES
Deloitte carbon tax director Izak Swart also warned that companies should expect the proposed carbon tax to make an appearance in the budget speech, noting the National Treasury’s recently released draft Bill. The tax was expected to be implemented on January 1, 2017.
He highlighted that, given the current economic climate, industry was “dead set against” a carbon tax and suggested that the implementation of the tax be postponed.
However, he noted that the world was pushing towards the implementation of such a tax, particularly after the twenty-first Conference of the Parties, in Paris, in December.
He noted that if the tax was not implemented soon, it would come back to bite exporters and hamper the country’s competitiveness.
Swart added that Gordhan would be “very cautious” in his budget in terms of additional taxes, as weak economic conditions and the drought would continue to place significant strain on the taxpayer.