Faced with below-target tax collections for the current fiscal year, Finance Minister Pravin Gordhan was likely to follow global trends in raising taxes as a compensation measure and a means to manage the deficit, Deloitte KwaZulu-Natal tax directors said this week.
Gordhan is set to deliver his 2013/2014 Budget speech in Parliament in Cape Town next Wednesday.
Discussing the likely outcome of next week’s budget, the directors agreed that Gordhan had “almost no leeway” to reduce taxes, but had to balance any increases with the need to stimulate the economy and create employment.
“The slower-than-expected growth rate, driven by the sluggish global recovery, labour unrest, exchange rate pressure and the need to manage South Africa’s debt levels affecting the country's credit rating all weigh on Gordhan as he prepares his budget,” the team said.
Consequently, the largest slices of revenue would be sourced from personal income and VAT, and could mean an increase to the maximum marginal rate or the introduction of another tax bracket for high-earning individuals.
While they were unlikely to produce significantly more revenue, they could be deemed politically palatable. Another potentially unfavourable option bandied about was introducing a graduate tax.
Director Peter Maxwell said each year there was extensive media speculation on whether or not the VAT rate would be increased, but this had not happened since 1993. The counter was that other countries had used this mechanism to manage their deficits, with the UK recently raising VAT from 17.5 percent to 20 percent, although some goods and services only attracted a 5 percent rate.
He believed an across-the-board VAT hike was politically insensitive, but there could be support for a higher VAT rate on luxury goods.
Director Christopher Clarke said Sars would continue tightening compliance and was already using the new Tax Administration Act to levy significant penalties for understatement of income. The focus on the wealthy, combined with risk-based auditing of corporates, was likely to continue as Sars aimed to raise the overall tax take from the existing tax base.
“In this environment, the level of disputes with Sars is likely to increase rather than abate,” he said.
Corporate tax collections, including dividends tax, were likely to fall significantly short of budget, underpinning speculation that Gordhan might raise the current 28 percent company tax rate. There had also been suggestions that mining companies would face a new tax on the export of non-beneficiated minerals and there appeared to be little room for introducing new tax incentives for companies.
Director Thrisha Soni said the proposed carbon tax had been on the cards for several years and, if introduced in the Budget, could prove a substantial revenue base – albeit at the potential cost of economic growth.
Consumers would also face the annual hike in excise duties, pushing up the prices on alcohol and tobacco products.
The annual increase in the fuel levy would also place another burden on motorists already suffering from crippling hikes to fuel costs.
“Whatever changes Gordhan has up his sleeve this year, it is unlikely to carry much tax relief, except perhaps for the lower-income earners,” the team said.
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