South Africa’s budget, which is to be presented in Parliament on February 24, is unlikely to result in the introduction of a wealth tax or any other significant tax increases.
Rather, it is more likely that the National Treasury will take steps to ensure tax enforcement and collection, says professional services network EY.
“The Budget trend since 2019 has mainly been to equip the South Africa Revenue Services (Sars) to enhance tax enforcement and improve tax collections. We do not anticipate a significant departure from this focus in this month’s budget,” says EY South Africa tax leader Ekow Eghan.
He adds, however, that EY continues to be of the view that a phased-in reduction of corporate tax rates, however unpopular, could help drive South Africa’s trade, economic reform and competitiveness.
“The corporate tax rate cut is a matter of when. It is also particularly important in the wake of the pandemic to help corporate South Africa restore finances and, by extension, reduce the risk of further job losses,” he explains.
On the topic of an introduction of a wealth tax, Eghan says that, while it appears politically attractive, the jury is out as to whether such a tax will achieve its objective better than other alternatives.
A wealth tax that raises substantial tax revenues in an efficient manner should be welcome but only if that tax is also fair and difficult to avoid, he states.
“Critically, because of the complexities in the design and administration of such a tax, it is not a policy direction South Africa should rush into without a wider public consultation process,” he adds.
Eghan says that, despite a lack of clarity about how much additional enforcement capacity currently exists in Sars, some taxpayers can expect a more adversarial relationship with Sars as it pulls all the levers of its powers to enforce compliance to bridge the ‘tax gap.’
The tax gap is the difference between the true amount of taxes owed in any given tax year and the amount that is paid on time.
“We expect an uptick in audits plus a more rigorous application and interpretation of tax law. This will inevitably result in more disputes as compliance behaviour comes under the spotlight,” Eghan warns.
“Taxpayers should gear up for more regular ‘settlement’ negotiations with Sars, as well as a greater willingness to go to court.”
Eghan adds that a poorly-coordinated or overly aggressive enforcement programme by Sars risks eroding the remaining trust and cooperation between compliant taxpayers and the tax administration.
PWC'S VIEW
Meanwhile, economists and tax experts from professional services firm PwC have also released their predictions for the 2021 Budget.
This includes that Budget margins will be trimmed and reprioritised towards medical and other necessary social expenditure.
Further, they say Finance Minister Tito Mboweni is likely to restate the government’s commitment to reducing the public sector wage bill.
Moreover, they posit that he will emphasise the need to ensure an active approach to debt management.
PwC says political pressures are likely to prevent the National Treasury from reducing the quantum of expenditure allocated to the bailout of State-owned enterprises.
Owing to the rising levels of government debt, it is unlikely that rating agencies will be satisfied with Budget 2021, the firm adds.
The firm says the Budget is likely to provide full details as to the total costs of rolling out the Covid-19 vaccination programme; and adds that it will not be necessary to increase taxes to fund the vaccination programme.
Tax revenues are likely to exceed the forecasts made by the MTBPS 2020 by between R100-billion and R108-billion, according to PwC.
It expects that tax increases proposed in the MTBPS 2020 will not be introduced while those for the outer years will be relaxed.
Tax revenues for the 2021/22 fiscal year will be about R1.3-trillion, PwC estimates.