Cape Town - Almost 3 000 “wealthy” South Africans earn an annual income of R7 million or more, and whether or not they will be taxed more will be among the issues pondered by tax and finance experts when Finance Minister Pravin Gordhan presents his budget speech on Wednesday.
Anthea Scholtz, tax partner at Deloitte, said Gordhan will have his work cut out for him as, against a challenging global and South African fiscal backdrop, he will need to articulate a careful balancing act between both “spending” and “revenue-generating” activities to ensure fiscal sustainability while also ensuring the country’s social and economic programmes are protected.
Read: What can we expect in Gordhan's budget?
Scholtz said the South African 2015 Tax Statistics report, published in November, provides a useful overview of the country’s tax revenue collections and key tax return information.
The report showed that tax collections in South Africa have increased significantly and progressively over the past few years to R986 billion in the 2014/15 fiscal year, representing a 9.6 percent increase (R86.3bn) over the prior fiscal year. “While these increases in our country’s tax revenues over the past few years are encouraging, it should be noted that these were not mainly driven by increases in tax rates, but rather by a combination of factors including above-inflation wage settlements, increases in domestic consumption, improvements in tax administration and compliance, and an increase in the value of imports.”
Scholtz said personal income taxes, value-added tax (VAT) and corporate income taxes collectively account for 80 percent of the total tax revenues of South Africa and, of the R986bn revenue collected during the 2014/15 fiscal year, personal income taxes continue to be the main contributor to the country’s tax coffers, contributing 35.9 percent of total revenue.
She added that South Africa has a progressive income tax system based on the premise that the wealthy should contribute a greater proportion towards supporting the state than the poor, meaning the more you earn, the more tax you should pay.
“One of the main issues underlying the tax debate in South Africa is the significant inequality in the income levels between the rich and the poor. The South African debate is further fuelled by the perception that there seems to be a number of very wealthy individuals in South Africa and the question is whether these individuals are paying their fair share of taxes in the country.”
She said an estimated 2 900 South Africans fit into the category of high net worth individuals (whose annual gross income is R7 million or more and/or whose gross wealth is R75m or more).
Scholtz said while the main component of South Africa’s revenue will always be tax revenues, tax is not the only solution to raise additional revenues and key parts of the solution must also include expenditure cuts, curbing the size of the civil service, having a growing economy and creating jobs. “What is clear is that there are tough times ahead.”
Sizwe Ngqame, the chairman of the Black Business Chamber, said the minister should look at increasing tax on imports, make more money available for SMMEs (small, medium and macro enterprises), improve the labour situation and improve accountability in tax revenue.
He added that Gordhan should also subsidise commercial farmers, allocate more funding for emerging farmers and allocate special funding for township economy and innovative young entrepreneurs.
Eric Enslin, the chief executive of FNB Private Wealth and RMB Private Bank, said the speech should prioritise concrete interventions to avert further economic deterioration and improve investment prospects.
Enslin said South Africa is under pressure to improve its current economic position and investment climate, and hopefully the announcement can put investor fears at ease through concrete plans to reassure local and foreign investors the country is still a worthy destination for investment.
Ronel Sheehan, the chief executive of the Building Industry Bargaining Council (Cape of Good Hope), said although the council welcomes the mooted two-year delay in the introduction of the compulsory annuitisation of two-thirds of provident fund savings on retirement, it is vital that Gordhan sets the record straight on harmful myths and misconceptions about new tax amendments during his speech.
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