Finance minister Enoch Godongwana is expected to clarify South Africa’s fiscal situation in his maiden Medium Term Budget Policy Statement (MTBPS) on Thursday (11 November), including the possibility of new taxes.
While Godongwana is unlikely to go into the details of new taxes, the MTBPS should provide some direction as to whether we will see any new taxes come February 2022, says Nazrien Kader, Old Mutual Group’s head of tax,
“Minister Godongwana has previously indicated that he is not a proponent of increased taxes to fund expenditure. He is on record at a recent ANC policy meeting where he expressed the views that South Africa cannot tax its way out of an economic crisis and pointed out that the recent tax increases did not yield substantial additional revenue,” she said.
“It has also been widely reported that there has been an accelerated exodus of so-called high net worth individuals out of South Africa in recent times, with one of the reasons being South Africa’s currently high tax rates for individuals and a threat of future increases, without the trend abating. ”
Kader said that some of the taxes on the agenda and which remain hotly debated include:
- A more permanent ‘wealth tax’ or ‘inheritance tax’;
- A possible ‘digital tax’, based on the blueprint released by the Organisation for Economic Co-operation and Development (OECD) recently;
- A possible ‘green tax’, the principles of which are currently being debated by the OECD.
The tax gap
Closing the tax gap – broadly described as what taxes are collected versus what ought to be collected – is one way to help fund the extra spend, said Kader.
“Estimates of the tax gap vary, and some commentators put this at around R200 billion. SARS has in recent months been beefing up its enforcement efforts, and SARS commissioner Edward Kieswetter recently confirmed that the organisation had made inroads into reducing the tax gap. By how much and whether this is sustainable remains to be seen. ”
“I would be so bold as to concur with Minister Godongwana’s instincts that South Africa cannot tax itself out of the fiscal hole that it finds itself in. At this time, it would be prudent to take the bold step to restore confidence and free up the economy to stimulate growth by reducing taxes and offering incentives to businesses to reinvest.”
Kader said that the MTBPS is also likely to clarify how Godongwana intends to operationalise the economic recovery plan that proposes new investments in energy, water and sanitation, roads and bridges, human settlements, health and education, digital infrastructure and public transport.
Most importantly, as a priority, it should provide certainty on the steps Godongwana will take to implement the structural reforms he mentioned that needs to be implemented to create a more conducive business environment, she said.
“This includes fixing our electrical supply, dealing with the issue of the release of spectrum, improved logistics, ‘greening’ our economy and improving the ease of doing business.”