It is unlikely that there will be a massive policy shift in the 2021/22 National Budget, but rather, it is hoped that the five-year fiscal consolidation strategy will continue, professional services firm Deloitte Public Services Industry leader Gaba Tabane has said.
He was speaking during Deloitte’s webinar on February 4, which focused on expectations for the 2021/22 National Budget Speech, which Finance Minister Tito Mboweni will deliver on February 24.
Tabane said the Budget would need to focus on keeping the country’s debt to gross domestic product ratio in check, reducing the wage bill in the public sector and putting in place controls to reduce expenditure.
He said he expected the focus areas for Mboweni to be the key sectors defined in the Economic Reconstruction and Recovery Plan.
Tabane said government needed to show that there was financial support for the industries that were identified for investment in the plan. He noted that he expects to see more money going into infrastructure, especially in technology and logistics for vaccine distribution.
Tabane noted that the economy and public sector would not deliver if the basics were not in place, such as reliable electricity supply.
He noted that the Budget had to address a myriad of challenges, including the stabilisation of State-owned enterprises (SOEs), emphasising this as “non-negotiable”.
Tabane said that this lack of stability caused a considerable reputational risk to government, both domestically and internationally.
He indicated that the Budget had to show some form of commitment on what would be allocated to SOEs.
The budget comes amid a challenging economic backdrop, further complicated by the Covid-19 pandemic.
Mboweni had previously indicated that he would be implementing large spending cuts combined with tax increases.
Speakers noted that there had been an improvement in tax collection in November and December, and that it was hoped that substantial tax hikes would not be necessary if this trend continued, combined with the economy bouncing back somewhat.
Rather, speakers called for strengthening capacity at the South African Revenue Services (Sars) and regaining lost expertise, combined with the entity embracing digitalisation and new technology.
Deloitte Africa Life Sciences and Healthcare Industry leader Ashleigh Theophanides said the pandemic had placed a huge demand on the healthcare system, both public and private, and it was unclear what the strain on the sector would be going forward.
She highlighted that fiscal spending was "incredibly constrained"; therefore, there would have to be some form of reprioritisation if the Budget is to cover some of the vaccine costs. There may also be the implementation of a one-off tax to cover some of these costs.
In terms of reprioritisation, Theophanides noted that the National Health insurance (NHI) had been top of the healthcare agenda, and one of the concerns would be whether there was funding available to cover the costs of implementing this system.
She said, however, that the pandemic had shown some building blocks were needed to propel some of the elements outlined in the NHI. For example, she mentioned one of the underlying principles as being cooperation between public and private entities, which was seen during the pandemic.
Moreover, there was significant traction in terms of the health information system and integration from a public sector perspective, and this would be further expanded with the vaccine roll-out.
Deloitte Transfer Pricing senior associate director Billy Joubert said that cutting expenditure would be preferred over tax hikes; however, at this juncture, both were necessary.
The government had also been considering the possibility of a solidarity tax to offset revenue shortfall, he noted.
Joubert said that, while this was feasible, it would need to be handled very carefully. Government would have to communicate that it was temporary and that the funds would be carefully ringfenced and used responsibly.
Moreover, he noted that cognisance must be paid to the fact that South Africans are already very highly taxed.
He called instead for the attraction of investment, highlighting the welcome news this week by automotive manufacturer Ford, which plans to invest nearly R16-billion in its Silverton plant.
Deloitte Global Business Tax Services director Alex Gwala, meanwhile, said that since the financial crisis of 2008, the country’s economy had never fully recovered, and corporates had never returned to the level of a 26% contribution to total tax revenues. Rather, this had decreased to about 16% in 2019 and 2020, he noted.
He said that Mboweni last year indicated that there were plans to reduce the corporate income tax rate from 28%. While this was welcome, he said, should it come through, it might not be sufficient to ensure its purpose anymore, as it has taken so long to materialise.
Gwala emphasised that it was critical, at this stage, to find another means to stimulate companies in the country.
Deloitte Indirect Tax director Severus Smuts pointed out that there was unlikely to be an increase in value-added tax (VAT), as this would impact on businesses already in distress owing to Covid-19, as well as consumers, many of whom were struggling.
He also said it was unlikely that a tax on luxury items would be introduced, because this was difficult to administer.
Rather, he suggested that the focus should be on making the VAT system more user-friendly, especially for non-residents.
He also noted another important focus as being the tax gap, which had grown over the years.
Smuts noted that there was the possibility that government would introduce a digital services tax, with this playing out on a global level. Such a tax would have very low rates, with the suggested range at between 1% to 3% for Africa, whereas globally, it was as high as 7.5%, he pointed out.
Deloitte Global Investment and Innovation Incentives leader Tumelo Marivate emphasised that there was an opportunity for Sars to further pursue digitalisation, which would help it to claw back some revenue and close the tax gap.
She noted that revenue authorities globally are approaching digitalisation as a huge opportunity, and changing the way that they operate by using new technology and big data that allows comprehensive analysis of taxpayer data.
Marivate said Sars had made some good strides in terms of digital transformation, and that this progress would be vital in promoting voluntary compliance, collecting more real time data, and moving towards taxing at source rather than just returns.