2014: The election budget
24 February 2014
Posted by: Author: SAIT Technical
of Finance, Pravin Gordhan’s belt tightening and haircut initiatives announced
in recent years will not be enough to make-up for the estimated shortfall in
the 2013/14 revenue collection”, predicts Stiaan Klue, Chief Executive of the
SA Institute of Tax Professionals (SAIT)
President Zuma’s State of the Nation Address
(SONA) this year didn’t include any references to (2014
new tax reforms) tax reforms aside from a brief mention of the
Employment Tax Incentive. "This is somewhat surprising, considering that tax
was an important area of focus in last year’s SONA where President Zuma
introduced the Tax Reform Committee headed up by Judge Dennis Davis,” comments
Klue. "I suspect that the President is giving Minister Pravin Gordhan an
opportunity to announce any possible tax reforms during his Budget Speech.”
According to Klue, the mounting financial
pressure on the consumer, exasperated by the recent hike in interest rates,
will force the Minister of Finance to downwardly revise projected tax revenues
in the upcoming review, especially in projected revenue from indirect taxes.
"As a result, the 2013/14 budget revenue targets of R895bn set for tax revenue
will certainly not be achieved.”
the estimated tax revenue for the 2014/15 fiscal year is set at R985 billion,
which is a modest R7 billion less than the 2013 estimate. "Considering that
South Africa is on the eve of a national election, the R7bn is a significant
shortfall for a government faced with enormous socio-economic challenges,
labour strikes, and ongoing township service delivery protests,” notes Klue.
The slowdown in the economy (slow economic growth) and consumer spending (decline in consumer spending) towards the second and
third quarter of 2013, combined with the wave
of mostly illegal strikes in the mining sector last year which cost the country
R11Bn in lost revenue will
negatively impact total projected revenue collection for the fiscal year ending
30 March 2014.
is cognisant of the fact that the majority of their voter base, who are in the
lower income brackets, are feeling overwhelmed by increasing financial
pressure. "Significant income tax relief (income tax
debt relief) is expected to be announced for those who earn less than
R165 600 per annum,” comments Klue. "While this is certainly welcome
relief for the proletariat, this measure will dash any chances of the
(South African National Treasury) National Treasury reaching their 2014
target for tax revenue.”
Currently the budget
deficit for 2013/14 is forecasted at 4.2% of the gross domestic product
according the 2013 medium term budget statement, significantly down from the
5.2% projection in February 2013.
financial pressure on government, may force the Finance Minister’s hand to find
creative ways to increase taxes”, says Professor Sharon Smulders Head of Tax
Policy and Research at SAIT.
is relatively easy to counter against the lower revenue collection (revenue collection strategies) expected this year by
significantly increasing indirect taxes (indirect taxes
in South Africa) such as environmental taxes, the fuel levy and
‘sin-taxes,’ comment Smulders. " There is also the proposed carbon tax (carbon tax policy) which is expected to be introduced
soon, although it is interesting to note that Australia made an about turn on
their carbon tax initiative.”
outright increase in direct tax (direct tax payment) is
unlikely in an election year. However, the government will be popular if it
introduces tax reforms (2014 new tax reforms) that
further their objectives in the redistribution of wealth, such as an increase
in Capital Gains Tax (CGT), and the introduction of luxury VAT rate similar to
the UK”, says Smulders.
"By way of comparison, the UK’s effective CGT
inclusion rate is currently set at 28% for higher income earners, compared to
the effective 13.3% in South Africa. A window of opportunity therefore looms
for the Minister to adjust CGT upwards – a move which will afford him praise
from the alliance and left politics. It should however be noted that basis cost
for in the UK is annually adjusted for inflation, which would bring down the
effective rate,” remarks Smulders. "If the Treasury (South
African National Treasury) proceeds with the proposed upper limit of
annual pension fund contribution deduction at R350 000 from 1 April 2015, then
South Africa will, in effect, see an indirect super tax bracket of 44%”.
Notwithstanding left-wing political pressures
within the governing party alliance, any policy shifts, will be closely watched
by rating agencies.
The South African Institute of Tax Professionals (SAIT) is the largest of the professional tax bodies in South Africa, and seeks to enhance the tax profession by developing standards in education, compliance, monitoring and performance. SAIT contributes to the development of world class professional practises and people. The Institute plays a leading role in developing sound tax policy and shaping fiscal legislation through participation in, and dialogue with, Parliament. SAIT actively contributes to industry leading thought leadership content and guidance to taxpayers. Through SAIT’s international network, and influence as chair of the global Tax Directors Forum, South Africa participates and contributes to the work of the OECD, and the Institute regularly hosts international tax conferences and summits in support of the national developmental agenda.