South Africans should brace for higher taxes

 ·30 Oct 2019

South Africans have to brace for higher taxes next year as revenue collection falls short of estimates.

Bailouts for the state-owned power utility, broadcaster, airlines and arms maker – together with a failure to curb the public-sector wage bill and stem fiscal leakages – have sapped the state’s resources. Africa’s most-industrialized economy hasn’t expanded by more than 2% annually since 2013, damping confidence and resulting in the longest business-cycle downturn since 1945, weighing on tax income.

The National Treasury increased the value-added tax rate last year for the time in more than two decades and has also raised taxes for high-income earners to plug the widening budget deficit. That has added to the strain on consumption spending and economic growth.

Growth Slump

“Significant tax increases over the past several years leave only moderate scope to boost tax revenue at this time,” the Treasury said in its medium-term budget policy statement released Wednesday in Cape Town. Additional tax measures are under consideration to raise an extra 10 billion rand ($683 million) in fiscal 2021, it said, without giving details.

“Given the fiscal position we find ourselves in, all tax options need to be on the table,” said Chris Axelson, chief director for economic tax analysis in the Treasury.

The South African Revenue Service will probably collect R1.37 trillion in the 2020 fiscal year, R52.5 billion less than forecast in February, the Treasury said. The shortfall will be R84 billion in 2021 and 114.7 billion rand in 2022, it said.

The shortfall reflects “job losses, lower wage settlements and smaller bonuses reducing personal income-tax collection,” the Treasury said. Reduced profitability in a difficult trading environment meant lower-than-expected corporate income-tax collections, while weak household consumption moderated the increase in revenue from value-added tax, it said.

The February budget included 7 billion rand from the sale of non-core assets by March, but “there is a risk these sales will not be completed by the end of the financial year,” the Treasury said.

The government insists that citizens of Gauteng – which houses the financial hub of Johannesburg and the capital, Pretoria – must pay for electronically administered tolls to use the province’s roads, and will strengthen compliance measures.

In July, Transport Minister Fikile Mbalula said South Africa is considering the options available on scrapping the tolls.

“Not paying your tolls has already led to our roads deteriorating,” finance minister Tito Mboweni said in a prepared copy if his speech. “We have been unable to maintain the network. I urge the nation to please pay your bills.”

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