Increasing fuel levy makes better sense than tax hikes, says PwC
13 February 2015
Posted by: Author: Ntsakisi Maswanganyi
Author: Ntsakisi Maswanganyi (BDlive)
Raising the fuel levy will be more beneficial and less destructive to the economy than increases in personal income, corporate income or value added taxes.
This is according to one of the world’s largest professional services networks, PricewaterhouseCooopers (PwC).
A 50c a litre increase in the fuel levy would raise R10bn of the additional R12bn in tax revenue that Finance Minister Nhlanhla Nene hopes to collect in the 2015-16 financial year. The R12bn is already included in the 2015-16 tax revenue estimate of R1.9-trillion.
PwC head of national tax technical Kyle Mandy said any fuel levy increase was unlikely to be higher than 50c a litre. "I think 50c is the maximum. I would not be surprised to see something more like 40c."
Mr Nene said in October that the additional R12bn would be raised from taxes and administration reforms. The government needs to find sources of additional revenue while limiting spending to bring down the large budget deficit, which is one of the reasons behind rand weakness and sovereign credit rating downgrades.
PwC said raising the fuel levy would be less detrimental to the economy as consumers have had relief of R4 a litre in recent months. The firm also expected increases in the Road Accident Fund levy of 8c-10c a litre and more details about a proposed biofuels subsidy levy.
PwC was not expecting raises in personal income, corporate income, and VAT as that would only stymie economic growth, Mr Mandy said.
Corporate tax revenues are underperforming and are expected to continue to be under pressure in the 2015-16 year due to weak economic growth. The challenges facing companies include high labour costs and power supply disruptions.
Increases in corporate taxes would negatively affect the competitiveness of SA’s tax rates, Mr Mandy said, as the global trend for corporate tax rates was downwards. In fact, PwC was rather expecting some announcements regarding tax relief for small businesses.
National tax chairperson at the South African Institute of Professional Accountants Ettiene Retief agreed that corporate taxes were unlikely to be raised. However, he believed that individual and value added taxes would be hiked, he said in a statement.
Tax director at EY Rob Stretch said it was unlikely that Mr Nene would raise value added taxes with the Davis Tax Committee still doing its work of reviewing the country’s tax regime.
This article first appeared on bdlive.co.za.