The tax changes South Africa should make in February: analysts
One of the most critical questions to be answered in this budget is how the tax burden will be shared between individuals and corporates, says analysts at financial services firm Deloitte Africa.
In a presentation ahead of the national budget on 23 February, the group noted that the idea of a Universal Basic Income Grant (BIG) has gained momentum over the past year, while the National Health Insurance (NHI) remains an aspiration. Both these items may require tax increases to be financed, it said.
“In last year’s budget, individual taxpayers got relief of R2.2 billion through rebates and bracket adjustments. There is an even stronger case for more tax relief to help consumers cope with rising food and fuel costs, rising interest rates, and the devastating effects of the Covid-19 pandemic/outbreak on household finances.
“At last year’s budget, it was announced that the corporate income tax rate will be reduced to 27% with effect from years of assessment commencing on or after 1 April this year. The government cannot afford to reverse this undertaking.”
So, if the government needs to raise taxes in order to fund a BIG or NHI will they hurt consumers through personal income tax or value-added tax increases? Or should the burden fall to corporates or high net-worth individuals? Raising taxes may have a negative effect on the economy, Deloitte Africa said.
“The focus should rather be on widening the tax base while lowering tax rates, a process that is already underway – with the reduction of the corporate income tax rate, accompanied by a reduction of some tax allowances such as deduction of certain expenditures and utilisation of assessed losses.
“Ultimately, there is no substitute for growing the economy. A larger economy – and more people with jobs – will yield more tax revenue and assist in reducing unemployment. By contrast, imposing an even heavier burden on the existing tax base would damage the economy and therefore also tax collections in the long term.”
The economic growth conundrum
Following the global financial crisis in 2008/2009, South Africa’s economic growth never truly recovered, Deloitte Africa said.
Even as other middle-income emerging market economies restored their growth rates to pre-recession levels, South Africa went on to record the worst decade on record for growth, according to the March 2021 South African Reserve Bank quarterly bulletin.
“The government’s economic management performance for the decade ahead will be judged by how quickly we can get the growth rate to pre-Covidlevels and then improve to pre-recession levels. This year’s National Budget needs to spell out the first steps to changing the growth trajectory.”
It noted that up until now, the government’s economic reform programme is characterised by lengthy lead times between an idea being formulated and it being implemented.
“The latest setback is the court action by telecommunications companies over the auctioning of the spectrum.
“Government should not allow this to halt the overall momentum of reforms and should move on areas such as third party access to rail, announced in the Economy Reconstruction and Recovery Plan in October 2020, to help lower the cost of logistics.”
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