Gordhan ‘unlikely to hike tax rates’

Independent Newspapers

Pravin Gordhan, Minister of Finance. Photo: Matthew Jordaan.

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The looming Budget will bring no dramatic increase in income tax rates, according to Des Kruger, a director for tax at Ernst & Young.

His comments, at a presentation in Johannesburg yesterday, came after speculation that Finance Minister Pravin Gordhan will hike rates to compensate for disappointing revenue collections, when he presents his annual financial blueprint in two weeks time.

But Kruger predicted Gordhan would hold the line against raising the tax take to much more than 25 percent of gross domestic product (GDP). Economists believe, when taxes rise above that rate, governments are taking too much from the economy’s productive resources.

The ratio of tax to GDP was reduced from 27.6 percent in 2007/08 to 24.6 percent in 2011/12, Kruger said. Last year’s Budget set it at 25 percent for the 2012/13 fiscal year and it is expected to move higher.

Kruger said South Africa’s tax rates – personal, corporate and VAT – compared well with those in other countries and he did not anticipate much change.

Looking at personal income tax, he said low income groups had benefited over the past 19 years, with the effective tax rate on an annual income of R100 000 falling from 33.8 percent in 1994/95 to 17.8 percent in 2011/12. An effective tax rate takes inflation into account.

Higher income groups were somewhat better off than previously, he said: the wealthy had been compensated for fiscal drag (a rise in the tax rate due solely to inflation-linked wage increases). The tax rate of someone earning R1 million a year had fallen from 42.1 percent to 37.3 percent.

Kruger said the share of personal income tax, in the total take, had fallen from a high of 34.3 percent in 2009/10 to 33.7 percent in 2011/12, corporate tax from 26.5 percent to 20.4 percent and VAT from 27.2 percent to 25.7 percent. The fuel levy had been fairly constant at about 4 percent, with a spike to 5.1 percent in 2010/11.

Secondary tax on companies (STC), now phased out, had been stable. The contribution of dividend withholding tax, which replaced STC of 10 percent last year, has still to be seen. However, the rate at 15 percent is substantially higher.

Other taxes were slightly up.

Analysing sources of tax revenue, Kruger said more than half of corporate income tax was paid by companies with a taxable income of more than R200m, or less than 0.1 percent of the companies assessed.

By sector, finance, insurance, real estate and business services, together with the wholesale and retail trade sectors, made up 53.1 percent of assessed companies and contributed 41.9 percent of assessed tax.

In terms of VAT, vendors with a turnover of more than R1m contributed 76 percent. Major contributors to VAT in 2011/12 were mining and quarrying, coal and petroleum, agriculture, forestry and fishing as capital expenditure increased.