Expect massive fuel levy increases for the next three years
The upcoming National Budget Speech for 2019/20 could be a seminal moment for South Africa’s Treasury.
Mike Teuchert, national head of Taxation at Mazars, said that the possibility exists that the country may begin to bear fruit from the impactful tax changes that have been made over the past two years.
He added that this is the first year that Minister Tito Mboweni will have a real influence on any of Treasury’s policies, having only been appointed two weeks prior to last year’s Mid-Term Budget Policy Statement
“With 2019 being an election year, we predict that the 2019 Budget Speech will probably not see major changes to existing taxes,” he said.
“However, we should definitely look for a number of indicators that will give South Africans a much clearer picture on what to expect in the year ahead.
Looking at the major tax classes, Teuchert said that corporate and personal income taxes have been stretched to their limit, and the public is unlikely to react favourably to any further increases in the value added tax (VAT) rate.
“Treasury will be under pressure to avoid any moves that could shake voter confidence, so there will likely be less said about increasing taxes, and perhaps more emphasis on increasing social grants.
“On the other hand, Treasury still has challenges to solve, so it will be interesting to see how it navigates around issues like the revenue collection shortfall (estimated in October of 2018 to be around R27.4 billion), and the current budget deficit (which is expected to have expanded to 4.8% of the country’s gross domestic product).”
Bernard Sacks, tax partner at Mazars, said that Treasury should be able to deliver some good news regarding some of the measures that it has put in place to improve revenue collection.
“The 1% VAT rate increase that was announced last year, should make a substantial difference in Treasury’s projected revenue figures for 2019. The changes made at SARS to improve revenue collection should make for a much easier year, now that the R20 billion in overdue VAT refunds have been dealt with.”
Big concern
Conversely, Sacks said that one of the biggest concerns at present, is the growing liabilities of the Road Accident Fund (RAF).
“The RAF levy was increased by around R0.30 in 2018, to assist with its growing liability,” he said.
“In spite of this, the RAF’s liability is expected to expand to R355.3 billion in 2020/21, meaning that the RAF’s liability has almost doubled.
“It is expected that Treasury may announce a number of large increases over the next three years to manage this.”
As part of its medium-term budget policy statement in October 2018, National Treasury confirmed that the RAF was a major problem.
“The Fund represents a potentially large liability,” it said.
“Despite a 30c increase to the RAF levy in the 2018 budget, the fund’s liability is expected to grow to R393 billion by 2021/22 from R206 billion at present.”
To combat this, the RAF will require “further large increases to the fuel levy in each of the next three years” to manage the short-term liability, it said.
Over the last decade, the tax component of the petrol price has increased over 200%, with the RAF levy growing 315%.
The graph below details how the taxes and levies have changed over the past 15 years.
Read: This is how much South Africans are paying for their cars
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