Expect a jump in these taxes in South Africa

 ·7 Sep 2022

National Treasury acting director-general Ismail Momoniat says that South Africans can expect the carbon tax and sin taxes to continue to escalate as local and global challenges continue to put pressure on the economy.

Speaking at the South African Institute of Taxation’s (SAIT’s) Tax Indaba on Wednesday (7 September), Momoniat said that the biggest issues facing the country in the short term are economic growth and making an impact on unemployment, while also dealing with poverty and inequality.

These are not new challenges but ongoing challenges, he said, which have been compounded by global issues – including the fallout of Covid-19, Russia’s invasion and the ongoing war in Ukraine, chip shortages, and ‘zero-Covid’ policies in foreign markets like China, which cause frequent economic shutdowns.

“We are living in a world that’s become very uncertain – more uncertain than many of us are used to. They impose new challenges on us in the short term,” Momoniat said.

The acting DG said that these short-term challenges are detracting from long-term ones – specifically climate change.

“When there’s a long-term challenge like climate change, we need to do better than how we are dealing with short-term challenges,” he said, adding that the global environment in tackling such issues has become incredibly toxic, and policymakers are divided. Some people lean into irrationality, he said, not following the science.

Amid this “great uncertainty”, Momoniat said that the world is falling behind established targets around carbon emissions, which will have a greater impact on the local economy going forward.

“The world hasn’t reduced emissions. That’s just a fact,” he said. As a result, instruments like carbon taxes are going to escalate, with the government likely to lean into policy and regulation to deal with the growing crisis.

“One tax that will be going up is the carbon tax,” the acting DG said. “Because we are so far behind, the taxes are going to go up. In 20 years, it’s going to be even higher. We (National Treasury) are going to become stricter on allowances and exemptions.”

The acting DG acknowledged the contradiction in pushing for action against climate change while South Africa leans into fossil fuels to address its energy crisis, but he said that addressing short-term challenges shouldn’t cloud long-term goals.

As an example, Momoniat pointed to Europe – facing an energy shortage due to being cut off from Russia – currently turning to coal power to get through the winter and ensure people survive. However, the region is making big strides in renewable energy sources. The short-term challenge isn’t replacing the long-term strategy.

Momoniat said that it’s difficult for Treasury to give any strict indication on how policies and taxes will move ahead, mainly because there is no certainty. “There is no certainty because climate change has introduced so much uncertainty. We try to give some broad direction. We may not know by how much (carbon taxes will increase), but it will be a hell of a lot,” he said.

Momoniat said that core taxes in South Africa – personal income tax, corporate tax and VAT – also face new challenges, whether it’s a shrinking tax base, or digitalisation, etc.

He said that funding the basic income grant (BIG) would require a tax hike.

“Don’t fool yourself by thinking you can have a step change in expenditure and not raise one of the two big taxes, and that does have an impact on growth. You need to understand the trade-offs.”

When it comes to long-term issues, he said Treasury is using the tax system to deal with them. This includes challenges like climate change and health. With the former, carbon tax is the key tool, with the latter, its sugar tax and sin taxes. He indicated that sin taxes and sugar taxes would also go up.

“They do make some difference,” he said.

Read: Warning over South Africa’s shrinking tax base

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