All eyes are firmly fixed on South Africa as finance minister Malusi Gigaba prepares to deliver his first Medium-Term Budget Policy Statement (MTBPS) on Wednesday, 25 October.
The statement marks Gigaba’s first official budget speech as finance minister since the controversial firing of his predecessor Pravin Gordhan in March 2017.
In a new report published on Wednesday, advisory firm Deloitte said that the MTBPS is expected to come under far greater scrutiny than usual, primarily due to recent political and economic developments in the country.
“This year, allegations of ‘state capture’ and corruption in South Africa occupy the world stage, while the South African government remains pre-occupied with bailouts for state-owned entities,” said Nazrien Kader, managing partner at Deloitte Africa’s Tax & Legal Services.
“Economists estimate that revenue collections will fall short of budgets, continuing the steady downward trajectory (from an estimated shortfall of R30 billion earlier in the fiscal year to between R50 billion to R65 billion more recently) and rating agents have the country on watch,” said Kader.
Should Gigaba indicate that revenue collections fell far short of estimates, another ratings downgrade was likely, Deloitte said.
Other main considerations include:
- A possible downgrade in the country credit rating, due to revenue collections falling far short of estimates
- Government bailouts for SOEs and associated funding
- Proposed National Health Insurance (NHI) Scheme and the potential removal of current medical tax credits as a means of funding NHI
- Revenue Authority collaboration in Africa and some of the potential consequences for companies and ‘high net worth’ individuals
- Personal Tax Proposals (including the proposed Wealth Tax)
- Base Erosion and Profit Shifting (BEPS) including measures to combat tax avoidance schemes and the success or failure of the recently concluded Special Voluntary Disclosure Programme (SVDP)
- South Africa’s ranking in the World Bank’s Competitiveness Index
- The effective date of the sugar tax and carbon tax proposals announced previously
- Wasteful expenditure in the public sector
- South Africa’s progress towards the Sustainable Development Goals and compliance with international regulations
According to Deloitte, the budget could see further clarification on the sugar tax, with additional rules for the tax still expected from SARS.
This should provide clarity on administration and compliance for importers and local manufacturers of non-alcoholic beverages.
However, South Africans should only expect its implementation in 2018, said Deloitte.
Deloitte said that it was still unclear whether a comprehensive carbon tax will be implemented.
Given the complexities of calculating carbon emissions, sufficient time will be needed for emitters to prepare, it said.
“Mandatory greenhouse gas reporting has been introduced by the Department of Environmental Affairs. Emitters will be required to report their emission for 2017 by March 2018. Careful consideration should be given to these reports as it may very well form the basis of a carbon tax.”
Government Incentives and Allowances
Agro-processing and infrastructure support are expected to be priority areas for incentive support, in line with the Industrial Policy Action Plan, along with programmes that fast track transformation and focus on supplier and enterprise development.
Another round of the Jobs Fund may also follow, the group said.
National Health Insurance (NHI)
It remains unclear whether the minister will prioritise the National Health Insurance (NHI) and address the proposed NHI funding mechanisms, said Deloitte.
Questions still remain about the funding shortfall and the impact on consumers.