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‘Perfect storm’ to hit revenue targets

Thursday, 28 January 2016   (0 Comments)
Posted by: Author: Amanda Visser
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Author:  Amanda Visser (IOL)

The country is facing one of its toughest years with economic growth projected at less than 1 percent, and a real threat of a credit rating downgrade because of governments' inability to meet its fiscal targets.

South Africans are already facing hikes in fuel prices, food prices, health and education costs and higher interest rates. They should brace themselves for further shocks in February when Finance Minister Pravin Gordhan delivers his annual budget.

Tax and economic experts say a further increase in personal income tax rates is a given, but without an increase in the Value Added Tax (VAT) rate it will make little difference to government's revenue woes.

Kemp Munnik, head of tax at SizweNtsalubaGobodo, says VAT is the only tax that will make a significance difference, but with it being an election year the politics behind an increase will make it a tough decision.

Revenue figures from April to November last year showed the South African Revenue Service has collected R239.3 billion in personal income tax, R90.8 billion in corporate income tax, and R173.1 billion in VAT. December collections will be made available at the end of this month.

Government last year paved the way for an increase in personal income tax rates by increasing the top marginal rate to 41 percent and is expected to increase it further to 42 percent. "This upward trend is going to continue," Munnik says.

Johan van der Walt, committee member of the SA Institute of Tax Professionals (SAIT), says the "perfect storm" that hit South Africa at the end of last year will affect the South African Revenue Service's ability to deliver on revenue targets.

"The trend of limited revenue growth is likely to continue for the next two to three years, which means that the fiscal space previously available has evaporated."

Blow out

The rand has experienced a blow-out against other major currencies which will result in higher inflation, commodity prices is at an "ultra-low" level, China's economic growth has contracted and consumer and business confidence is at an all-time low, Van der Walt remarks.

Damage to South Africa's international image will be hard to repair, says Munnik. "Investors have always been willing to give South Africa a chance, but that has changed. They no longer have the appetite for emerging markets. The risks are just too big."

Van der Walt, also the head of dispute resolution and tax controversy at KPMG, says the bloated civil service and its out-size wage bill, combined with South Africa's debt servicing costs are consuming a too large chunk of the budget.

"In fact South Africa has been living beyond its means and the coming budget might have to contain some unpleasant belt-tightening measures, otherwise the rating agencies could downgrade South Africa later in 2016."

South Africa has to relook its spending, rather than to try and extract more from already heavily-burdened middleclass taxpayers, van der Walt says.

Economist Mike Schussler expects the tax income from smaller businesses to decline. "It will not make a big difference, but it will show that beyond a few big corporate companies the economy is not growing, yet the population is growing."

State owned enterprises, social grant beneficiaries, universities and municipalities will be looking at central government for increased assistance.

What is needed however, is a reduction in the size of the public sector with less ministers and departments, the reigning in of state owned enterprises and their wage bills, and getting private sector to assist with the building of power stations, Schussler says.

He adds local companies are increasingly investing outside the country. "In a sense that is not a direct tax revolt, but does indicate a plunge in confidence over the last few years."

Many "taxes" are not being paid, he says. These include e-tolls, traffic fines, property rates, and there is probably some small slippage in VAT and corporate taxes from smaller firms.

The big issue is to slowly regain local and international confidence, Schussler says.

Gordhan will deliver his budget on February 24.

This article first appeared on



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