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South Africa faces a significant shortfall in revenue collection due to the coronavirus lockdown and other economic factors, says the Parliamentary Budget Office (PBO).
The PBO provides independent, objective and professional advice and analysis to parliament on matters related to the budget and other money bills.
In a presentation ahead of Finance Minister Tito Mboweni’s Medium Term Budget Policy Statement (MTBPS) next week, the PBO said the revenue cost collection rate continued to decline from 0.97 in 2014/15 to 0.78 in 2019/2020.
The revised estimates of estimated tax revenue for 2020/21 are now:
- R238 billion (18%) less than actual tax revenue collected in 2019/20
- 304 billion rand (21%) less than budget revision estimates in February 2020; (including Covid-19 tax relief)
“The economic conditions of Covid-19, coupled with the continued digitization of business activities and continued erosion of the base and transfer of profits, will negatively affect all these sources of tax revenue,” he said.
The PBO said the government is now considering discretionary fiscal measures to raise additional revenue in the medium term.
He highlighted some of the global suggestions to reform tax measures proposed by the UN and other international organizations.
This includes:
- Higher corporate tax rates for multinational companies in oligopoly sectors (sectors with limited competition);
- A minimum effective corporate tax rate of 25%;
- Taxation of capital gains at ordinary income tax rates, not low inclusion rates;
- Exchange of international tax information between jurisdictions to combat base erosion and profit transfer (BEPS) and consideration of unit taxes.
Digital tax
The PBO also highlighted the possibility of introducing a digital tax, an issue that is also gaining international attention.
“Global discourses to rethink the allocation of tax rights have intensified. South Africa taxes consumption (VAT) but not income from digital economic activities, ”he said.
The PBO has previously been presented at the Introduction of a digital tax, noting that South Africa was one of the first countries to introduce tax measures to generate revenue from the consumption of business activities in the digital economy, generating additional government revenue since 2014.
However, like many other developing countries, it has continued to lose tax revenue in the absence of specific tax measures that allow the imposition of taxes on the income generated by digitized economic activities, the PBO said.
“As South Africa’s corporate tax revenue as part of revenue has declined over the years, and as more businesses have become more digitized, there is a need to consider tax measures that allow revenue to be derived from digital economic activities.” , He said. .
“By applying this approach, South Africa would be following recent international trends, which would not only guarantee the necessary additional revenue, but also ensure that all business activities contribute their fair share to the fiscus.
In addition to a digital tax on consumption and income generated by digital economic activities, South Africa could also generate additional revenue from customs duties on cross-border digital economic activities, the PBO said.
He noted that the current tax regime provides for customs duties for non-digital cross-border products and services.
The group added that global online imports and exports have grown faster than physical imports over the past decade, however this is constrained by a World Trade Organization (WTO) moratorium that has been in place since 1998.
“Sub-Saharan Africa’s revenue losses are expected to range between $ 600 million and $ 2.6 billion (R10.8 billion and R46.8 billion) annually in potential customs duties due to the WTO moratorium,” said the PBO.
“It is estimated that South Africa has lost between $ 25 million (R475 million) and $ 37 million (R700 million) in potential revenue from customs duties as a result of the WTO Moratorium.
“Unsurprisingly, South Africa and India have raised concerns about the fiscal impact of the 1998 WTO Moratorium over the years, and the duo put forward a proposal to end the WTO Moratorium in March. 2020, “he said.
Other proposals
A document viewed by Bloomberg in October he also proposes a series of specific tax increases and changes as part of the country’s new economic recovery plan.
The document, prepared by the President’s Economic Advisory Council, proposes that a series of tax increases and changes be considered, including:
- Fuel and estate tax increases;
- A three-year ‘solidarity tax’ that would raise taxes for those who earn the most;
- Introducing a basic income subsidy that could cost R243 billion a year and would require tax increases;
- Pension funds and other private investors that support infrastructure projects if there is a clear portfolio for the next 10 to 20 years.
These proposed changes align with comments made by the National Treasury in a July MP. presentation.
At the time, Chief Director Edgar Sishi said that the National Treasury is considering a series of new fiscal measures, as the government seeks to raise an additional 40 billion rand through raises in the coming years.
In his filing, Sishi said the Treasury was considering investigative reports from the Davis Tax Committee on the possible introduction of new measures, including the feasibility of a Health tax and how it relates to a land tax and an inheritance tax.
In June, Mboweni said selected clients that the Treasury is discussing the possibility of a inheritance tax and a call solidarity tax in an attempt to raise additional funds.
Taxes on the rich are favored politically, and a solidarity tax associated with the virus outbreak would be limited in duration.
In South Africa, the maximum income tax rate is 45%, corporation tax is 28%, and VAT is 15%.
Read: Disposable income has been cut in half in South Africa
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