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Tax increases and state spending cuts are inevitable, PwC says

17 February 2016   (0 Comments)
Posted by: Author: BDlive
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Author: BDlive

Tax increases and a cut in government spending are inevitable if SA is to change its current course and avoid ratings downgrades, PwC tax experts say.

Corporate income tax and value added tax (VAT) were unlikely to be raised, PwC SA tax policy leader Kyle Mandy said at a briefing on Tuesday. Corporate taxes would not be raised as many companies were already under financial pressure due to weak demand and muted economic growth.

VAT, which is paid on goods, would not be raised because 2016 is an election year and because such an increase could add more disagreements between the ruling African National Congress (ANC) and its alliance partner the Congress of South African Trade Unions (Cosatu).

A marginal increase in personal income taxes, and an above-inflation increase in general fuel levies and excise duties were likely to be announced in Finance Minister Pravin Gordhan’s national budget speech next week, Mr Mandy said.

Although tax increases will hurt taxpayers who are already under financial pressure from rising food prices, inflation and interest rates, they would help SA receive more revenue and avoid costly ratings downgrades.

Spending cuts announced in President Jacob Zuma’s state of the nation address, which included cuts on hotel stays, foreign trips, and catering, were not enough and would save the government only millions of rand, PwC said. What would save the government billions of rand would be reducing the size of the Cabinet, Mr Mandy said.

The Department of Sport and Recreation could, for instance, be merged with the Department of Arts and Culture, as their areas were closely related, Mr Mandy said.

"It is those forms of significant reforms that are really required to put a dent (in) expenditure," he said.

This article first appeared on bdlive.co.za.


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