Finance Minister Tito Mboweni tomorrow begins a task to make a compelling case for the government to raise funds to meet the country's Covid-19 vaccination programme. Photograph; Phando Jikelo/African News Agency(ANA)
Finance Minister Tito Mboweni tomorrow begins a task to make a compelling case for the government to raise funds to meet the country's Covid-19 vaccination programme. Photograph; Phando Jikelo/African News Agency(ANA)

Mboweni has herculean task to find funding for vaccination

By Siphelele Dludla Time of article published Feb 23, 2021

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JOHANNESBURG - FINANCE Minister Tito Mboweni tomorrow begins a task to make a compelling case for the government to raise funds to meet the country's Covid-19 vaccination programme, with all eyes fixed on whether he will raise taxes as the fiscus has to meet increasing needs amidst dwindling revenues.

There is wide speculation that Mboweni might announce a once-off solidarity tax for vaccination as there is little room for increasing taxation at any level.

However, tax analysts yesterday indicated that though the idea of a wealth tax was possible, it remained unlikely due to insufficient data on distributional household wealth levels and scarce research on the topic.

KPMG South Africa senior corporate tax partner Roula Hadjipaschalis said it was very difficult to predict what Budget announcements would be made and tax increases would be introduced.

Hadjipaschalis said that areas that could yield revenue for the government were implementing interest limitation rules to possibly at 30 percent deductibility, limiting the carry-forward of assessed losses, and a possibility of a digital services tax.

“We will probably see a combination of this in the Budget, with no increase in the VAT rate and a possible decrease in the corporate tax rate,” Hadjipaschalis said.

“This would, of course, not significantly impact the revenue collections, especially in the pandemic where company revenues have declined in the majority.”

The government's finances were approaching a crisis before Covid-19 struck, with the country already in a technical recession following two quarters of negative growth.

The managing director at Deal Leaders Africa, Andrew Bahlmann, said that raising taxes would be the wrong thing to do as South Africa had already a higher tax rate compared to other countries in the region.

Bahlmann said that an increase in taxes would place more pressure on profits, cash flows and disposable income.

“Businesses and consumers represent a dwindling pool of contributors who have been taxed to the hilt. They cannot generate even more money to fund the economy,” Bahlmann said.

“Liken us to customers to whom you are selling a product or service. There is a price point that makes the purchase uneconomical, so we stop buying. We have reached that point.”

Tax revenue shrunk significantly on Covid-19 economic headwinds as lockdown restrictions and business closures led to consumers' financial crunch.

However, revenue collections rebounded in the fourth quarter after benefitting from high metal prices, leading to an estimated R100 billion overrun, compared to October estimates.

Momentum Investments' economist Johann van Tonder said revenue could be about R216bn less than the National Treasury's estimate in February 2020.

Van Tonder said using a revenue overrun could help diminish the consolidated Budget deficit by around R90bn than estimated in October, of R707.8bn.

He said that even an implosion in revenue collections in the last three months of the financial year may still yield an overrun of around R52bn on the main Budget.

“Although positive from a debt reduction point of view, it might create another risk for the minister and the National Treasury's efforts to scale down government expenditure,” Van Tonder said.

“Labour unions representing civil servants might use it as rationale for salary increases going forward.”

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