Investment company Allan Gray tax lead Carla Rossouw says government will have a number of aspects, including how to fund Covid-19 vaccine doses, to consider for the 2021 Budget.
Allan Gray expects the budget to centre on tax increases and improving the tax collection capabilities of the South African Revenue Services (Sars).
In terms of corporate tax, Rossouw says an increase would negatively impact on South Africa’s global competitiveness to attract foreign investment.
Moreover, she posits that it would also not yield a substantial amount of additional revenue, owing to the impact Covid-19 has had on business operations, with some businesses forced to close their doors permanently.
Rossouw says that the South African value added tax (VAT) rate is still relatively low compared with the rest of Africa and the world and, while theoretically the most effective tool to generate revenue, it is also the most controversial and an increase would hit the unemployed and poorer individuals the hardest.
Rossouw notes that personal income tax (PIT) remains the largest source of tax revenue.
South Africa’s PIT rates rank among the highest in the world, alongside Belgium and Germany, from a very concentrated tax base, she notes, which leaves little room to introduce significant changes.
However, ‘bracket creep’ , a ‘silent’ revenue generator for the government, has become a common feature over the last few years, she indicates.
Rossouw says lockdown measures have contributed to higher unemployment and lower consumption, which has contributed to a significant reduction in tax revenue.
Rossouw indicates that the Medium-Term Budget Policy Statement (MTBPS) in October 2020 indicated that South Africa’s public finances had been deteriorating for some time and government spending remains too high for the tax base.
He says that this, coupled with the impact of Covid-19, may result in certain tax measures being announced.
The government is seeking to increase taxes by R50-billion over the next four years, starting with projected tax increases of R5-billion in the next financial year, informs Rossouw.
She notes that an advisory panel appointed by President Cyril Ramaphosa indicated that hikes to the fuel levy and estate taxes could be considered, as well as a three-year solidarity tax for high-income earners.
Rossouw notes that the 2020 MTBPS reconfirmed the Davis Tax Committee’s proposals to rebuild the capacity and efficiency of Sars to improve collections by addressing tax leakages and using third-party data to identify noncompliant taxpayers.
“The cost of tax revenue collection is an important indicator of the efficiency of revenue administration and is often used when benchmarking against administrations in other countries. This ratio is calculated by dividing the operating cost of a revenue authority by total tax revenue collected.
"The 2020 edition of the Tax Statistics publication indicated that Sars’ cost-to-tax-revenue ratio is below the international benchmark of 1%. Through automation and digital migration, Sars has managed to reduce the volume of manual activity and improve turnaround times (this was expedited in 2020 in response to Covid-19 service delivery concerns). Technology is therefore at the forefront in driving Sars' efficiency and there seems to be no indication of slowing down,” she indicates.
An increase in tax will not have the desired trickle-down effect to areas where it is needed the most, if government does not effectively deal with corruption and the looting of public funds, notes Rossouw.