South Africa

Details

  • Service: Tax
  • Type: Business and industry issue
  • Date: 2014/02/18

SA will not reach lower tax target, say analysts 

This article first appeared in Business Day, 10 February 2014

 

Economic slowdown, strikes will take toll on revenue collection

 

The reduced tax revenue target of R895bn for the fiscal year end­ing March 30 will not be achieved given the expected drop in tax revenue, tax commentators say.

Finance Minister Pravin Gordhan, who adjusted the tax revenue target downward by R3bn in the medium-term budget policy statement in October, will deliver his fifth budget speech on February 26, at a time when South Africans are battling with an inter­est rate hike, price increases on all levels and a weakening rand.

The slowdown in the economy and consumer spending towards the second and third quarters of last year, combined with the wave of mostly illegal strikes in the min­ing sector which cost the country R11bn in lost revenue will nega­tively affect total projected rev­enue collection for the fiscal year ending March 30.

Mr Gordhan is expected to keep spending on a tight leash in efforts to bring down the budget deficit — the difference between revenue and spending. Rating agencies could further downgrade SA's sovereign credit rating if the government failed to manage its deficit.

Commentators at PwC, BDO, KPMG and the South African Institute of Tax Practitioners (SAIT) said the continuing work of the Davis Tax Committee, the gen­eral election on May 7 and eco­nomic pressures on individuals and companies call for a conser­vative budget.

PwC predicted increases in the general fuel levy of 20c// -25c// and in the Road Accident Fund levy of 8c//-10c//. Smokers and drinkers could expect above inflation increases in excise duties on tobacco and alcohol. But ah increase in direct taxes (personal income and corporate income tax) was unlikely in an election year, SAIT head of tax policy Sharon Smulders said last week.

SAIT CEO Stiaan Klue said the estimated tax revenue for the next fiscal year (2014-15) was set at R985bn, a "modest" R7bn less than the 2013 estimate.

"Considering that SA is on the eve of a national election, the R7bn is a significant shortfall for a government faced with enormous socioeconomic challenges, labour strikes, and ongoing township ser­vice delivery protests," he said.

BDO tax director David Warneke predicted a rise in the marginal tax rate of higher income earners from 40% to 45% given pressure on the government to deliver on jobs and basic ser­vices. This view was not shared by SAIT, KPMG or PwC.

KPMG tax director Deborah Tickle said about 388,000 people earning more than R580,000 paid 49.2% of all the personal income tax in 2012. "Even if one were to collect R10.000 more from each of these taxpayers, it would only provide Mr Gordhan with R3.88bn," she said.

Mr Warneke said more mean­ingful tax incentives for savings would be welcomed in Mr Gordhan's budget speech. "As part of this incentive, we (BDO) would like to see a significant reduction in the taxation of retirement lump sum benefits," he said.

PwC head of national tax tech­nical Kyle Mandy made reference to the work of the Davis Tax Com­mittee, which was appointed by Mr Gordhan last year to review SA's tax policy framework, and its role in supporting growth, employment, development and fiscal sustainability.

He said no announcements were expected on mining taxes, estate duty and donations tax, or the. value-added (VAT) rate, as these were all areas that the committee would be reviewing.

Prof Smulders said the govern­ment would be popular with its alliance partners if it increased capital gains tax and introduced a luxury VAT rate.

 

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Contact

Deborah Tickle
Director, International and Corporate Tax, Cape Town
deborah.tickle@kpmg.co.za