The taxes which are likely to increase in South Africa – and those that won’t

South African Finance Minister Tito Mboweni told selected clients of two of the country’s biggest banks that the National Treasury has no plans to boost income, corporate or value-added tax even as the coronavirus decimates the nation’s finances.

The Treasury is discussing the possibility of an inheritance tax and a so-called solidarity tax in a bid to raise additional finances, two people who listened to the calls with hundreds of clients of Standard Bank and Absa said.

They asked not to be identified because the calls were private.

Mboweni’s room to raise levies for individuals and companies is limited, with the ratio of tax revenue to gross domestic product at 26% compared to a global average of 15%, according to World Bank data.

Increasing value-added tax, which the government has done only twice since 1991, is unpopular within the ruling African National Congress because it is seen as affecting the country’s poorest people hardest.

Taxes on the wealthy are favoured politically and a solidarity tax, associated with the virus outbreak, would be limited in duration.

In a special adjustment budget last week, the government cut its revenue projection for the current fiscal year to R1.12 trillion ($64.6 billion) from the R1.43 trillion it estimated in February as the virus and the associated lockdown reduced business activity.

Mboweni said an additional 40 billion rand in tax will be raised over the next four years, without providing more details.

The Treasury, Absa and Standard Bank declined to comment.

Tax rates

In South Africa’s top income-tax rate is 45%, corporate tax is 28% and VAT is 15%.

In February, when the annual budget was released, the Treasury said it decided not to raise taxes due to the weakness of the economy and was considering lowering the levy on companies to boost the country’s competitiveness as an investment destination among emerging markets.

Since then, South Africa has lost the last investment-grade rating on its debt and the country on 27 March entered a lockdown to curb the spread of the virus.

While the government is gradually easing those restrictions, the Treasury forecasts GDP will contract 7.2% this year.

Read: South Africans are now missing payments and defaulting on loans

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The taxes which are likely to increase in South Africa – and those that won’t