Get ready for the taxman – Dawie Roodt

The 13 cents a litre decline in the petrol price which becomes effective midnight on Tuesday (February 4) will be more than offset by tax increases expected during finance minister Tito Mboweni’s budget speech later this month.

This is the view of Dawie Roodt, chief economist at the Efficient Group, who said that the five cents a litre reduction the price of diesel will similarly be overtaken by major increases expected in personal income tax and by hikes in the fuel levy and the so-called sin taxes on alcohol and tobacco products.

“The fact that government spent much more than it borrowed or received in taxes meant that it had run out of options on ways to collect money and was now once again hitting on the taxpayer,” he said.

“The economy is in deep trouble with some of the highest unemployment figures in the world, a vastly overstaffed civil service and an electricity provider that is unable to keep the lights on.

“They have now effectively broken the camel’s back by refusing to reduce their workforce or to limit spending. As usual it is the taxpayer who is going to foot the bill,” Roodt said.

With the economy shrinking, unemployment at an all-time high, and yet another downgrade almost certainly waiting for in February or March from rating agency Moody’s, there is very little to feel cheerful about, Roodt said.

These concerns were echoed by Neil Roets, chief executive of Debt Rescue, who said that his company is gearing up for one of the busiest years in the history of the company because of the growing numbers of distressed consumers who want to go under debt review.

Roets said that almost half of all consumers were three months or more behind in their payments. The major culprits are credit and store cards followed closely by unsecured debt.

He warned that 2020 will be a tough year, with consumers who had difficulty making ends meet in 2019, struggling even further.

“With gross consumer debt at around R1.9 trillion and the government’s gross loan debt at R2.2 trillion in 2016/17 financial year, it is clear that South Africans are in for a very rough ride.”

Absa recently warned that given South Africa’s ongoing fiscal challenges, it expects the government to lift indirect taxes in an effort to earn more revenues, and this carries implications for the inflation outlook.

“In our forecast, we have assumed that the government will raise the general fuel levy by 30 cents/litre. But more importantly, we expect the government to increase the VAT rate by 1 percentage point to 16% in the 2020 Budget.”

Absa forecasts a mix of smaller tax adjustments for a total take of roughly R35 billion. “Our call of a VAT hike is perhaps a bold one, given the likely political fallout, but it is difficult to see what other options the government has,” it said.

Further increases in personal income tax rates would likely damage the tax base, the financial services firm warned. “Over the longer term, the institutional rehabilitation of the South African Revenue Service (SARS) should serve to boost tax buoyancy, but this will take time to entrench.”

The government raised VAT by one percentage point to 15% in 2018, for the first time in 25 years.

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Get ready for the taxman – Dawie Roodt