Yes, South Africa, your taxes will increase this week: DA

DA shadow minister of finance, David Maynier, and DA shadow deputy minister of finance, Alf Lees, delivered their preview of the Main Budget 2017 on Monday (20 February), with the underlying message: taxes will increase.

Finance minister Pravin Gordhan will present the National Budget to Parliament on 22 February 2017, and the DA believes that he is drowning in “red ink” and will have to balance the books by announcing a combination of direct and indirect tax increases aimed
at raising at least R28 billion in 2017/18.

The political party pointed out that the minister is up against an economic growth forecast of 1.3% for 2017, which is likely to be revised down, closer to 1.1% in line with the South African Reserve Bank’s forecast.

Maynier and Lees put together a list of areas they believe the minister will increase taxes, and where he is likely to leave untouched.

Personal Income Tax

“We believe the minister may raise personal income tax, which raised R428.5 billion, or 37% of tax revenue, in 2016/17,” Maynier said.

“We expect the minister to either (1) raise the personal income tax rate by about 1%; (2) provide limited or no relief for “fiscal drag”, which could raise between R7 billion and R13 billion; or (3) create a new upper tax bracket, and a higher marginal tax rate of say 43%, for individuals earning a taxable income of more than R1.5 million per year, which could raise about R5 billion in 2017/18.”

General Fuel Levy

The DA finance lead said that Gordhan may also increase the fuel levy, currently charged at R2.85 per litre, which raised R64.2 billion, or 6% of tax revenue, in 2016/17.

An increase in the fuel levy of, for example, 50c per litre could raise about R11.3 billion in 2017/18, he said.

Wealth Taxes

“We believe the minister may raise ‘wealth taxes’ such as Dividends Tax, Capital Gains Tax and Transfer Duties in 2017/18,” Maynier said.

Excise Duties

The DA said that the minister may also introduce above inflation increases in “sin taxes”
especially on alcohol and tobacco products in 2017/18.

Special Voluntary Disclosure Programme

The minister will also rely on the Special Voluntary Disclosure Programme, designed to allow tax dodgers with unauthorized offshore assets or income to regularize their tax affairs in 2017/18.

Sugar Tax

“We also believe the minister will introduce a ‘sugar tax’ in 2017/18,” Maynier said.

Gordhan announced this time a year ago that a sugar tax will be levied with effect from 1 April 2017.

The country, however, heard a number of arguments against implementing a sugar tax, mostly from the drinks and beverages industry which claims that South Africa could lose as many as 60,000 jobs, and will have little or no impact on tackling obesity in the country.

What the minister will not do

Maynier said that he doesn’t expect Gordhan to raise Corporate Income Tax (28%), which raised R200.8 billion, or 17% of tax revenue in 2016/17, because it would be detrimental to economic growth.

The minister is also unlikely to raise Value Added Tax (14%), which raised R293.3 billion, or 25% of tax revenue in 2016/17, “because it is considered to be a regressive tax and is strongly opposed by Cosatu,” Maynier said.

“What this means is that whether you are rich, and taxed directly, or whether you are poor,
and taxed indirectly, the minister is going to reach into your pocket and help himself to at least R28 billion to plug the fiscal hole in 2017/18,” the finance lead said.

An alternative to taxes

The DA argued that there are alternatives to tax increases which could generate the revenue required to plug the R28 billion fiscal hole in the budget for 2017/18, including boosting economic growth, selling assets, cutting spending and eliminating waste.

“To illustrate the effect of economic growth on revenue, consider that an increase of 1% in GDP could raise R18.2 billion in additional revenue, assuming a tax buoyancy rate of 1.43%, in 2017/18,” Maynier said.

The DA said that substantial revenue could be raised by selling assets by privatizing or part – privatizing some owned entities, which had a net asset value of R1.1 trillion in 2015/16.

“To illustrate the potential of asset sales to raise revenue, consider the fact that the sale of
government’s stake in Telkom alone could raise about R14.7 billion in 2017/18,” Maynier said.

The DA also pointed out that ‘irregular expenditure’ increased from R26 billion in 2014/15 to R46 billion in 2015/16, while ‘fruitless and wasteful expenditure’ increased
from R1.04 billion in 2014/15 to R1.36 billion in 2015/16.

“We have to eliminate corruption by implementing what the Auditor-General, Kimi Makwetu, calls a “less tolerant approach”, and ensuring that there is “consequence management” for officials who do not comply with the Public Finance Management Act (No. 1 of 1999),” Maynier said.

The DA proposed implementing a Comprehensive Spending Review which would require National Treasury, working together with national departments, provinces, municipalities and state-owned entities.

Read: What should South Africans expect from the 2017 budget speech?