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Budget 2013: talk of tax hikes hots up

Monday, 25 February 2013   (0 Comments)
Posted by: SAIT Technical
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By Rene Vollgraaff (Business Day)

Executive summary

Experts 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.

Full article

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 materialise.”

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 taxpayers.

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 in 2011.

"They are already not insignificant contributors to government coffers, but there is this perception that they can contribute more.”

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 generate?

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 shortfall.

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 revenue.

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.



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