The South African government desperately needs more revenue, with potential tax hikes on the cards for the wealthy.
During the 2023 Medium Term Budget Policy Statement (MTBPS), Minister of Finance Enoch Godongwana outlined several cost-cutting measures expected to be integrated into the 2024 Budget, which will take place next week.
Forecasts expect a widening budget deficit for the country, exceeding the 6% estimate provided in the November MTBPS.
The minister also noted government expenditure has consistently outstripped tax revenue since the 2008 economic crisis, with the government now forced to borrow to fund essential services and repay existing debt risks that are entrenching the country in a perpetual debt spiral.
Phillip Joubert, Manager at the SAIPA Centre of Tax Excellence, said that financing infrastructure development, the National Health Insurance (NHI) and the Basic Income Grant remain massive challenges.
These initiatives and the under-resourced sectors of education, healthcare and social services need considerable funding.
“Without the government’s commitment to fiscal responsibility and spending cuts in other areas, increasing revenue through taxation remains the sole avenue for funding these essential projects,” Joubert said.
That said, several taxes are expected to remain stable in the upcoming budget, such as Value Added Tax (VAT).
Given VAT’s regressive nature disproportionately affecting the less wealthy, any increase would also require other compensatory measures to mitigate its impact on the poor, such as enhancing the zero-rating of staple food items.
The government may, however, consider revising taxes targeted at wealthier individuals, Joubert said.
These could include:
- Donations tax;
- Capital gains tax (CGT);
- Transfer duties; and
- Dividends withholding tax.
“For instance, an increase in the capital gains tax inclusion rate for individuals from 40% to 50% could achieve some of the government’s fiscal objectives.
“Similar adjustments could be applied to estate duty and donations tax rates.”
There could also be further pain at the pumps for the consumers, as the government may increase the general fuel levy, which has remained unchanged for the last two years amid high fuel prices, as it is an easy source of revenue.
Joubert also expects increased excise duties on tobacco, nicotine products, and alcoholic beverages.
In addition, from an individual tax perspective, the upcoming fiscal adjustments may result in a lower-than-normal budget creep (inflationary adjustments made to tax brackets and rebates affecting individual taxpayers.)
“Over the past decade, the government has implemented adjustments below the inflation rate to boost revenue without increasing tax rates directly. This conservative adjustment approach could also impact rebates and potentially medical aid tax credits.”