Two moderate tax measures could be implemented to raise the additional tax of about R15 billion needed to stabilise public finances that are under strain, says commercial law firm Cliffe Dekker Hofmeyr spokesperson Louis Botha.
During the 2023 Medium-Term Budget Policy Statement (MTBPS), the National Treasury said Finance Minister Enoch Godongwana would propose tax measures to raise the additional revenue in 2024/25 in the 2024 budget.
It is not clear exactly how the money will be raised.
Godongwana said revenue collections in the 2023/24 fiscal year were forecast to be R56.8bn below estimates in February, while personal income tax surpassed the 2023 budget forecast.
Botha, one of the tax experts Personal Finance spoke to, to find out how the money would be raised, said: “There are, broadly speaking, two possible ways in which they could do it. They could, for example, increase some of the existing tax rates. That’s the one possibility.
“The other possibility is that they could alter or make changes to the tax policy. So that, for example, certain deductions or incentives or the application of certain provisions in the legislation changes, and that then results in more of people’s income or a greater portion of the revenue generated being subject to tax.
“There have been times when they’ve increased tax rates unexpectedly. In 2017, they increased the dividends tax rate by 20%, which was unexpected at the time. That led to an increase in 2018, from 14 to 15%,” he said.
Botha said that in the 2023 Budget, Godongwana had indicated that there was about R13bn in tax relief.
“That took the form of no increase in the fuel levy. They said that was about R4bn. There were also renewable energy and solar incentives for businesses and domestic households. That was approximately R9bn. That amounted to R13bn. If they did the opposite of that, it would get to almost R15bn,” he said.
Deloitte Africa tax controversy leader Bernard Mofokeng said that according to Godongwana, the South African Revenue Service (Sars) would continue to focus on enforcing compliance in areas such as debt collection, fraud prevention, curbing illicit trade, voluntary disclosure and encouraging honest taxpayers to comply voluntarily.
“Based on these proposals, it seems taxpayers are going to be squeezed even more by Sars. Sars will be required to collect outstanding tax debts faster and more efficiently and increase audits on taxpayers which should, hopefully, result in more and larger assessments.
“For taxpayers, this may require more investment in resources including time to comply with their increased tax obligations, audit requests and in disputing assessments raised by Sars. For some taxpayers, the extra compliance may not be affordable as those resources may be better utilised for sustaining and growing their businesses,” Mofokeng said.
Sage Africa and Middle East senior compliance specialist Motumi Tsoeute said the minister was committed to avoiding significant tax increases. However, it was possible that a minor bracket creep might become necessary.
A bracket creep means when salaries are pushed into higher tax brackets. This is done for inflation purposes.
“The minister indicated that the primary factor contributing to our challenges is the lack of economic growth. The current growth rates are insufficient to achieve our desired levels of development.
“In the medium term, Godongwana aims to reduce spending on basic education and health care. However, these reduction measures will affect the poorer communities, due to public services already under strain,” Tsoeute said.
Botha agreed with Tsoeute. and said that if there were any changes in personal income tax, it would be in the form of bracket creep.
Botha said that while the MTBPS did not contain specific tax proposals, it was an update of where the country stood and it gave an indication of what could be expected in the Budget review.
He said one of the things that could be expected in the 2024 Budget was potentially introducing incentives around new electric vehicles.
“Godongwana specifically mentioned how the impact of electric vehicles might affect different manufacturers. So, we’ll see what those incentives are in the 2024 Budget review," he said.
Tsoeute said he expected the 2024 Budget to highlight sustained economic growth as necessary to stabilise the national debt.
“Government debt is projected to exceed R6 trillion by 2025/26, surpassing the size of the economy. This is a worrisome scenario, especially considering the cost of servicing the debt.
“We expect to see more expenditure reductions in the main Budget and little more realistic revenue projections, especially now that we can analyse the impact of the reduced corporate income tax rate.”