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South African taxpayers should prepare for the announcement of further tax increases in Finance Minister Tito Mboweni’s February budget speech as the government grapples with a mounting debt burden and lost revenue from the Covid-19 pandemic.
The National Treasury has said that it plans to raise R40 billion through additional taxes over the next four financial years. Rand 5 billion will be raised in 2021/22, Rand 10 billion in 2022/23, Rand 10 billion in 2023/24 and Rand 15 billion in 2024/25.
In the medium-term budget policy statement (MTBPS) presented in October, Finance Minister Tito Mboweni said that tax collection for the current financial year would not meet targets by another R8.7 billion, with bringing total gross tax revenue to R312.8 billion below the February 2020 budget forecast.
There are several factors that affect revenue collection in the current financial year, including but not limited to:
- A decrease in personal income tax due to the blockade;
- Restrictions on the sale of tobacco and alcohol; and
- VAT reduction as a consequence of the sharp drop in consumption.
Analysts and economists have said that any new or increased fiscal measures are likely to fall on the rich. Other taxes that have been mentioned have been an increase in VAT, implementing a single ‘solidarity’ tax and ‘inheritance taxes’.
Health tax
The Treasury has discussed the possibility of a wealth tax at various points in 2020, and 30% of those surveyed in October Bloomberg poll, see Mboweni signaling his intention to institute such a tax in February.
A study published by the World Inequality Laboratory this week showed that an annual wealth tax on the net worth of South Africa’s richest people could raise up to R160 billion.
It would also reduce inequality in a nation where the richest 1% of the population owns 55% of personal wealth,
In the moderate tax scenario, around 350,000 people would be subject to the tax, with a level ranging between 3% and 7% depending on the influx. The maximum rate would apply to people with a net worth greater than R146.89 million.
Raising R160 billion in taxes would equal 3.5% of gross domestic product, according to the study.
However, tax experts have warned against collecting taxes of the 40 billion rand on the country’s wealthy, saying it will likely lead to these people, and their money, leaving South Africa.
The 2020 budget review tax table showed that taxpayers earning more than 1.5 million rand annually paid 150 billion rand out of a total of 560 billion rand in personal taxes collected in the period. This is equivalent to 27% of the total tax collection.
Since there are only 125,000 people in this income category, this means that less than 1% of South Africa’s population of 58 million contributes 27% of total personal tax collection.
A tax increase for vaccines?
The additional 40 billion rand that the Treasury plans to raise in the coming years probably does not include any additional spending on the purchase of a Covid-19 vaccine.
This week, the Treasury said it is looking at a number of options available to raise money to pay for South Africa’s Covid-19 vaccines, including a possible tax hike.
In an interview with 702Treasury CEO Dondo Mogajane said South Africa tends to get money from two sources: taxes and loans from the market.
“Neither option is ideal as you can imagine. However, right now we are facing a pandemic and the president confirmed that we will do everything we can to make sure we find the money, “he said.
Mogajane said reprioritization of existing budgets was an option; a second option was to borrow more and increase the deficit. The third option was to tax citizens to make up the deficit.
He said that on February 24 an official decision on the budget of Finance Minister Tito Mboweni will be communicated and it will be detailed in depth to indicate where the money comes from.
Read: Reserve Bank keeps rates unchanged as it warns of new waves of Covid-19
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