New tax could help with South Africa’s coronavirus recovery

Government could introduce a number of financial relief programmes – including a possible solidarity tax – as part of its response to the coronavirus pandemic, says the Trade & Industrial Policy Strategies (TIPS) group.

TIPS said in a research note on Monday (3 August), that the fiscus faces a sharp fall in revenues, despite an increase in demand, especially for health and safety services.  As a result, funding the recovery requires innovative measures to redirect domestic savings.

Some of the possibilities for this redirection include:

  • A highly progressive solidarity tax that would ideally be levied on assets rather than income;
  • Establishing appropriate investment vehicles for retirements funds and financial savings. For instance, the government could issue a dedicated recovery bond, on the model of war bonds, possibly in the form of perpetual bonds or consols. Like war bonds, the bond would be premised on the idea that investors would benefit more by accepting comparatively modest financial returns in order to return sooner to broader prosperity and growth;
  • Identifying more developmental uses for surpluses held by the state-run social protection funds (mostly the UIF and the Compensation Fund). This will inevitably require them to accept new kinds of risk;
  • Extension of the holiday on the skills levy and a reduction in UIF contributions to 0.1% of payroll through June 2021. The aim would be to improve business liquidity and increase take-home pay for workers, boosting household demand. The National Skills Fund and many Sectoral Education and Training Authorities (SETAs), as well as the UIF, have large surpluses, so the reduction in the levy would not significantly affect their operations.

“Obviously, redirecting resources toward new uses means reducing spending in other areas, and innovation inevitably brings some risk. That, in turn, will lead to resistance, which has to be managed,” the TIPS said.

“For instance, in the case of the UIF, the financial managers object strenuously to investing the surplus in relief programmes, apparently at least in part because it cuts into their fees.”

New taxes 

National Treasury chief director Edgar Sishi said the department is considering a number of new tax measures as the government seeks to raise an additional R40 billion through hikes in the coming years.

In a July parliamentary meeting, Sishi said that Treasury was considering research reports from the Davis Tax Committee on the possible introduction of new measures, including the viability of a wealth tax, and how it relates to a land tax and estate duty.

“We are looking at these recommendations. It is important to remember that tax amendments over the last five years have included some of these proposals and we are looking at additional proposals for the 2021 budget.”

Citing finance minister Tito Mboweni’s supplementary budget speech at the end of June, Sishi said that there will be tax increases of R40 billion over the next four years, to help stabilise debt in the country.

The specifics of these increases will be communicated in the February 2021 budget, he said.

Finance minister Tito Mboweni has said that the National Treasury has no plans to boost income, corporate or value-added tax even as the coronavirus decimates the nation’s finances.

However, he noted that Treasury is discussing the possibility of an inheritance tax and a so-called solidarity tax in a bid to raise additional finances.

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


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New tax could help with South Africa’s coronavirus recovery