Answers we’re looking for in Tito Mboweni’s Budget 2020
We hope that the 2020/21 Budget will include commentary relating to the following questions:
* What austerity measures is the National Treasury taking to keep expenditure under control? The government has indicated various cost-saving measures. We expect mention of state-owned enterprises and financial discipline, measures to manage the public sector wage bill, and details on the proposed funding mechanisms for the National Health Insurance Bill and free university education.
* What alternative mechanisms is the government considering to increase tax revenue? We are aware that to increase revenue collections the SA Revenue Service (Sars) has embarked on increasing their capacity by hiring the people and embracing digitisation. The R1 billion allocated to Sars in the Medium Term Budget Policy Statement (MTBPS) over the next few years will assist the revenue office in implementing these plans.
In the MTBPS, the minister indicated there would be further co-operation between Sars and the Financial Intelligence Centre at the SA Reserve Bank to assist in fighting illegitimate cross-border flows and tax evasion.
It will be interesting to see what tax reforms the minister implements to achieve this objective.
The conundrum facing the minister is whether or not to increase taxes. South Africa’s corporate income tax rate is high compared with many developed countries.
Further, increasing personal income tax will put a strain on consumers who are already feeling the pressure of a depressed economy.
Increasing the rate of value-added tax could result in some political backlash. Therefore, we believe that the minister’s options to increase tax are limited.
There have been recent discussions globally around the taxation of the digital economy. Some countries are implementing a specific tax for taxing the digital economy in order to increase tax revenue. For example, France implemented a 3percent digital services tax. The budget may provide some clarity as to South Africa’s position on potentially introducing this type of tax.
* What plans does the government have to revitalise economic growth? The possibility of more load shedding continues to pose a serious threat to South Africa’s economic performance, competitiveness and business confidence. This issue, including updates on power generation, needs to be tackled in the Budget Speech.
The emerging digital economy should also be top of mind as the world moves towards 5G connectivity. To reduce the cost to communicate and boost South Africa’s competitiveness, businesses will be looking for interventions to accelerate the licensing of high-demand spectrum.
Support for small businesses - an important engine for economic growth and job creation - will also be sought-after. The cost of tax compliance remains a significant challenge for small businesses. Addressing this issue, in conjunction with other measures, such as tax incentives or tax breaks for small and medium-sized enterprises, would reduce the cost of doing business and aid this important segment of the economy. For example, South Africa could lower the cost of doing business by automating registration and filing processes.
Consideration should be given to reducing the cost of travel to South Africa in order to support the tourism industry.
Businesses and investors will be hoping for evidence of a move towards greater policy coherence and consistency, along with better regulatory certainty. Wider reforms to improve the ease of doing business for all corporates would also be a welcome development.
Delia Ndlovu is managing director: Africa tax and legal at Deloitte Africa.