Budget 2013: talk of tax hikes hots up
25 February 2013
Posted by: SAIT Technical
By Rene Vollgraaff (Business Day)
continue to speculate about the possibility of increased tax after the
President's state of the nation address last week. Some rule out an
increased VAT rate. Increased taxes for high-income earners continue to
feature. An increased corporate tax rate (currently 28%) is also
featured in discussions.
SPECULATION about the possibility of
increased taxes, especially for high-income earners, gained momentum after last
week’s state of the nation address and tax experts and economists are divided
on whether increases will be announced already in this week’s budget.
President Jacob Zuma said that
Finance Minister Pravin Gordhan would commission a study of South Africa’s tax
policies to ensure the revenue base was appropriate to support public spending.
Andrew Wellsted, national head of
tax at Norton Rose, said that, in view of Zuma’s announcement, the firm did not
expect massive changes to tax policy in this budget.
"If you are going to create a
commission to look into the tax policies of the country, you would be possibly
a bit foolhardy to then go and introduce sweeping changes in a budget if you
said there will be a commission later.”
Mr Wellsted said he did not expect
increases in VAT and personal income tax.
"It is very difficult to increase
the VAT rate without then zero-rating additional goods that low-income
households spend money on. It will be an unpopular move for the government to
change the VAT rate.
"It is easy to say we must increase
the income tax rate, but the government must consider the knock-on effect with
things like fuel prices going through the roof, affecting taxpayers, and
e-tolls lurking in the background. An increase in personal income tax rates
will be ill-advised and unpopular.”
However, Fanie Joubert, a senior
lecturer in Unisa’s department of economics, said the international trend
seemed to be to increase tax rates for high-income earners.
"If the Treasury gets on that
bandwagon, there is a good chance that we could see something like this (a
higher marginal tax rate),” he said.
Johann Els, a senior economist at
Old Mutual Investment Group of South Africa, said the Treasury might opt for
additional taxes to close the expected shortfall in the 2013-14 budget.
The likely options were to allow
less fiscal drag relief for particularly high-income individuals, a hike in the
top marginal individual income tax rate, bigger hikes indirect taxes such as
the fuel levy and excise duties and an increase in the VAT rate for luxury
goods, he said.
"The government is not likely to
raise both individual income tax and VAT rates, but one or the other could
Nedbank’s group economic unit said
in its budget preview that it expected the top marginal tax rate, the VAT rate
and company taxes to remain unchanged, but there might be a temptation to
increase the top marginal tax rate to make up for other shortfalls.
According to PwC’s budget
predictions, there should be no significant changes in categories such as
personal income tax, VAT and company tax. However, it expects inflation-related
increases in excise duties on tobacco and wine, and excise duties on beer and
spirits to increase by between 10% and 20%.
PwC said this was in line with the
announcement in last year’s budget that the targeted benchmark tax burdens on
these products would be increases phased in over two years.
ENS tax head Ernie Lai King said the
budget would "hopefully” not introduce any increase in marginal tax rates.
He said the marginal tax rate for
individuals exceeded that of other African countries such as Kenya and Malawi
(30%), Nigeria, Botswana, Egypt and Ghana (25%) and Mauritius (15%). He did not
expect any increase in VAT. A dual VAT rate, with increased VAT on luxury
goods, was possible, but not ideal owing to the administrative burden on
Mr Lai King said an increase in
corporate taxes was possible and Gordhan was also likely to announce the
parameters of the commission to review the tax system, including mining tax.
Mr Zuma said part of the tax study
would be the evaluation of the current mining royalties regime "with regard to
its ability to suitably serve our people”.
Alex Gwala, an associate director at
Deloitte, said a decision had been made by the ANC to increase the state’s
share in mining profits.
"Mining taxes are happening
internationally. It is the way business is run and changing. If it happens here
in South Africa as well, they [mining companies] will have to find a way of
accommodating the cost,” he said.
Dale Cridlan, a director at Norton
Rose, said mining companies contributed R25.8bn in taxes and R6bn in royalties
"They are already not insignificant
contributors to government coffers, but there is this perception that they can
But he said there should not be any
concrete announcements on a new mining tax regime in the budget, because the details
would depend on the outcome of the tax study Zuma announced.
How much extra could tax increases
EVEN if the Treasury increases VAT,
the top marginal tax rate for high-income individuals, company tax, excise
duties and the fuel levy, this would still not cover even a third of the budget
In a proposed paper for the
symposium of the South African Academy for Science and Arts in September,
Jannie Rossouw, Fanie Joubert and Adele Breytenbach, all from Unisa’s
department of economics, looked at possible additional sources of government
Based on the 2012-13 budget, they
added up the possible additional income from two extra income tax brackets —
45% for people with a taxable income of more than R1m and 50% for people with a
taxable income of more than R2m.
They also added the additional
revenue of a one percentage point increase in the VAT rate, a three percentage
point increase in the company tax rate and increases of 10% in both excise
duties and fuel levies. This would result in additional income of R46.8bn.
The estimated 2012-13 budget
deficit, according to the medium-term budget policy statement of last October,
was R156.5bn. But the estimate is expected to increase, given weaker economic
growth and revenue collection forecasts.
For 2013-14, the shortfall was
estimated at R161.3-bn.