South Africa could be hit by an unexpected tax blow, commission warns

The civil unrest experienced in KZN and parts of Gauteng in July will not only have an impact on businesses and employees but could have a direct impact on the fiscus through tax collections, says the Financial Fiscal Commission (FFC).

The FFFC is an independent constitutional advisory institution. Its responsibility is to advise and make recommendations to parliament, provincial legislatures, organised local government and other organs of state on financial and fiscal matters.

Briefing the Select Committee on Appropriations on Wednesday (15 September), the commission said it was important the South African Special Risks Insurance Association (SASRIA) receive additional funding support from Treasury to assist businesses impacted by the looting.

This will, in turn, help get impacted businesses on their feet quicker and contributing to economic growth, it said.

“The better-than-expected performance of the economy so far in 2021 that provided a windfall in tax receipts could now be offset by a lower tax take, as many businesses could make losses and employees could lose jobs,” it said.

“Pay As You Earn (PAYE) taxes and Corporate Income Tax (CIT) could thus disappoint on the downside. Support for business is critical, however, it translates into additional expenditure that is likely to worsen the fiscal scenario at the time when it was beginning to show signs of improvement.”

The urgent need to support businesses, particularly small and medium enterprises, to recover the losses incurred from the unrest cannot be overemphasised. It is critical for economic growth and job creation, the commission said.

“This allocation for SASRIA provides for repairing damage to businesses, a necessary step, but only a first one.”

A choice to make 

While the impact of the looting on South Africa’s fiscus could have ramifications on tax collections, there are also questions as to whether businesses will choose to stick it out long-term.

Business owners that received insurance payouts from the July riots and looting will have to decide whether they will use the proceeds to rebuild their businesses here in South Africa or take the money to restart somewhere else in the world, says Business Leadership South Africa (BLSA) chief executive Busi Mavuso.

Mavuso said that choosing to rebuild in South Africa or not is ultimately an investment decision, and there needs to be high confidence that the returns will justify the risks.

“There is no longer a sunk cost, and businesses can instead decide to use insurance proceeds for other purposes – including building elsewhere in the world or giving the money to shareholders – rather than putting it at risk,” she said.

“There are businesses large and small, locally-owned and foreign-owned, that must make these decisions now. For all of us invested in the South African economy, we must all hope that they choose to reinvest.”

That is how the government will protect jobs and generate tax revenue, and the supply chains that the rest of the economy depend on will be maintained. It is something both business and politicians should be singularly focused on supporting, Mavuso said.

“We have a window of opportunity to rebuild that confidence. Immediately after the unrest, there were strong political statements. Organised businesses rallied to support the security services and assess what would be needed to drive the reconstruction and reinvestment process. We remain ready to assist the government in many ways, but the momentum has slackened.

“There are many distractions – the pandemic, and now an election, among others. But the time is now – if we miss the opportunity to give companies that were affected a positive shot of sentiment, the destruction of July will be locked in and a component of our economy gone forever.”

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South Africa could be hit by an unexpected tax blow, commission warns