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Selective tax hikes predicted in South African budget

19 February 2014   (0 Comments)
Posted by: Author: Lorys Charalambous
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Author: Lorys Charalambous (Tax-News)

With Finance Minister Pravin Gordhan due to present his 2014/15 Budget to Parliament on February 26, the South African Institute of Tax Professionals (SAIT) has predicted that the Minister will have to introduce selective tax increases to make up for a shortfall in revenue collection. 

It was noted that the slowdown in the economy and consumer spending towards the second and third quarter of 2013, combined with the strikes in the mining sector which cost the country ZAR11bn (USD1bn) in lost revenue, will negatively impact total projected revenue collection for the fiscal year ending March 30, 2014. SAIT's Chief Executive Stiaan Klue has therefore concluded that "the 2013/14 budget revenue target of ZAR895bn set for tax revenue will certainly not be achieved." 

However, with lower income taxpayers suffering increasing financial pressure, Klue also commented that, in the 2014/15 Budget, "significant income tax relief is expected to be announced for those who earn less than ZARR165,600 per annum. While this is certainly welcome relief for (those on lower incomes), this measure will dash any chances of the National Treasury reaching their 2014 target for tax revenue" of ZAR985bn, only ZAR7bn less than the original 2013/14 estimate. 

With the budget deficit for 2013/14 currently forecasted at 4.2 percent of gross domestic product (GDP) according the 2013 medium term budget statement, and expected to decline only slightly to 4.1 percent in 2014/15, Professor Sharon Smulders, Head of Tax Policy and Research at SAIT, believed that "on-going financial pressure on the Government may force the Finance Minister's hand to find creative ways to increase taxes." 

"It is relatively easy to counter against the lower revenue collection expected this year by significantly increasing indirect taxes such as environmental taxes, the fuel levy and 'sin-taxes.' There is also the proposed carbon tax which is expected to be introduced soon," he remarked. "An outright increase in direct tax is unlikely in an election year. However, the Government will be popular if it introduces tax reforms that further their objectives in the redistribution of wealth, such as an increase in capital gains tax (CGT) and the introduction of a luxury value added tax rate similar to the UK." 

"The UK's effective CGT inclusion rate is currently set at 28 percent for higher income earners, compared to the effective 13.3 percent in South Africa," he added. In addition, "if the Treasury proceeds with the proposed upper limit of annual pension fund contribution deduction at ZAR350,000 from April 1, 2015, then South Africa will, in effect, see an indirect super tax bracket of 44 percent." 

Finally, it was pointed out by SAIT that "any (tax) policy shifts will be closely watched by rating agencies," whose main concern remains future trends in both the budget deficit and total government debt, as ratios of GDP. 

This article first appeared on tax-news.com.


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