3 alternative taxes proposed for South Africa – including ‘replacing’ income tax

The National Treasury has outlined some of the key tax proposals it has received in response to Finance minister Tito Mboweni’s Medium Term Budget Policy Statement (MTBPS).

In a parliamentary briefing on Friday (6 November), chief director at National Treasury of South Africa Edgar Sishi said that over a dozen organisations submitted responses to the MTBPS, including civil society groups such as Outa as well as financial institutions such as Old Mutual.

“The MTBPS does not usually include tax proposals, however it did restate that government is planning on increasing taxes in the 2021 budget to raise an additional R5 billion in revenue for 2020/21.

“(Treasury) continues to project an additional R10 billion in revenue 2021/22, R10 billion in 2022/23 and R15 billion in 2023/24 from tax measures,” he said.

Sishi said that the proposals will all be considered when determining the mechanisms to raise revenue over the next four years. Some of the key proposals are outlined in more detail below.


Health tax

This would see an increase in the health promotion levy rate, commonly known as the ‘sugar tax’, as well as an expansion of the tax base to include fruit juices.

The health promotion levy was first introduced by Treasury in 2018.

The levy is attached to sugary beverages which have been manufactured in or imported into South Africa. Currently, the tax applies to carbonated beverages such as Coca-Cola.


 

Wealth tax 

This would see an increase in tax revenue through increased taxes on high-net-worth individuals.

Aligned with this proposal is the limitation on deductions – such as for retirement fund contributions – as well as an increase in capital gains taxes and security transfer taxes.

Rising debt must be addressed by raising more resources from wealthy and high-income individuals and large profitable companies, which is also essential to reduce inequality, according to the Budget Justice Coalition (BJC) – a think tank representing a number of organisations including Equal Education, Section 27, and the Institute for Economic Justice.

“This necessitates looking to tax historically accrued income, through the implementation of a progressive net wealth tax. In the medium-term, increasing taxes on high net worth individuals and increased capacity for SARS to ensure tax compliance will be essential,” the BJC said.

The group said that there are thousands of South Africans who have net assets of $1 million or more, and 2,070 South Africans who have net assets of $10 million or more.

This shows that the country still has large sources of wealth, despite a weak rand and the ongoing emigration of the very rich – with approximately 3,000 HNWI having left South Africa over the past decade, it said.

However, Treasury noted that some proposals called for the opposite to occur and that taxes should be lowered for higher earners.

The argument is that lowering of taxes at the top end of the income distribution to encourage wealthy individuals to stay in South Africa and continue to contribute tax and expand their businesses to create jobs.


Land tax

One of the proposals includes the replacement of income taxes with a land tax based on comments made in the 2018 MTBPS.

“Government recognises the potential improvements in efficiency from land taxes (and property), as highlighted in the OECD report ‘Taxation and Economic Growth’,” it said in a 2019 response.

“Land is an immobile form of capital, which can increase in value due to public expenditures to improve nearby infrastructure.”

National Treasury said it has been holding and attending workshops to explore this topic. There are important practical and inter-governmental arrangements that need to be explored further.

“The instrument can potentially improve the efficiency of the tax system, but is unlikely to be a sufficient source of revenue to substitute all other tax instruments,” it said.


Read: Companies and wealthy South Africans should pay more tax: think tank

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3 alternative taxes proposed for South Africa – including ‘replacing’ income tax