Taxes will be the main focal point when Finance Minister Tito Mboweni delivers the budget as the government needs to fund the Covid19 vaccine programme amid muted economic growth. Photograph: Phando Jikelo/African News Agency(ANA)
Taxes will be the main focal point when Finance Minister Tito Mboweni delivers the budget as the government needs to fund the Covid19 vaccine programme amid muted economic growth. Photograph: Phando Jikelo/African News Agency(ANA)

SA taxes will be the main focal point of Tito Mboweni’s Budget speech

By Siphelele Dludla Time of article published Feb 8, 2021

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JOHANNESBURG - TAXES will be the main focal point when Finance Minister Tito Mboweni delivers the 2021/22 Budget as the government needs to fund the Covid19 vaccine programme amid muted economic growth.

The government estimates that the Covid-19 vaccination programme could cost at least R20 billion as more than 40 million citizens need to be vaccinated to achieve herd immunity.

This expenditure could push the government’s borrowing levels even higher, and closer to 95.3 percent of GDP forecast for 2025, from the current 81.8 percent of GDP.

Mazars tax analysts, however, said the Treasury was unlikely to announce any significant tax hikes as citizens were already overtaxed while the economy continued struggling.

Mazars tax partner Bernard Sacks said the financial figures for vaccination were not as considerable as many have feared.

“It would be wiser for the government to stimulate the economy and economic growth, employment and foreign direct investment to increase tax revenue rather than implementing new taxes or large increases in existing taxes,” Sacks said.

Economists said that the government might achieve a Budget overrun this year due to efficiencies that have been implemented by the SA Revenue Service (Sars).

Old Mutual Investment Group chief economist Johann Els estimated a revenue surplus of between R45.8 billion and R106bn due to higher-than-anticipated tax revenue last year.

He said that the extra revenue from tax increases would not only be insufficient to cover the vaccine costs, but raising taxes when the economy was so weak could be politically treacherous.

Recent data from Sars already shows both personal income tax and corporate tax collections in December 2020 were higher than in December 2019.

Investec’s chief economist, Annabel Bishop, concurred that the revenue overrun may be around R100bn in 2020/21.

Bishop said corporate income tax collections for the fourth quarter of 2020 were significantly higher than the same period in 2019.

She said this was also likely due to increased efficiency at Sars as it repairs its large business unit.

“We continue to expect that the government is likely to be lenient on the tax front in just over two weeks time, with little to no income tax increase and even allowing for fiscal drag, and no corporate tax increases as it prioritises economic recovery,” Bishop said.

“Reducing planned spending should remain the priority, and reducing planned borrowings in the face of the negative outlooks from the rating agencies.”

Bishop said the government would, however, collect less revenue this year than last and so cannot in any way stick to previous union wage agreements made when the fiscus was stronger.

The National Treasury has also indicated a measure of willingness to fund a Budget shortfall in the event that the government loses the court case in the public sector wage impasse.

But over the weekend, the Treasury said a decision to implement the agreement would have a very damaging impact on the finances of provinces as well as national departments.

“Additional funds that would have to be made available to pay higher wages would come either at the expense of service delivery and investment, or by further weakening South Africa’s ability to avoid a debt crisis,” it said in response to a Business Report question.

“Both of these outcomes would reduce fiscal sustainability, and harm long-run economic growth.”

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