Werksmans Attorneys director and tax specialist Doelie Lessing said she expects two major tax changes in Wednesday’s budget – but only one will have a real impact on South Africa’s fiscal shortfall.
“Even though there is an election next year, South Africa now needs so much money that I expect a 1% hike in the VAT rate to 15%,” she said.
“Government won’t want to hike VAT because it will be widely unpopular, but a VAT hike is an efficient way to raise a lot of money.”
Lessing also noted that it will be argued that compared to many other countries, South Africa’s VAT rate is quite low and that there are grounds to raise it without exceeding international norms.
She added that to sweeten the pill, there might be a decision in the budget to increase the number of zero-rated food items – and possibly even to zero rate other basic living necessities too.
“This would be a simple way to help people who will struggle financially with the higher VAT rates,” Lessing said.
In addition to the VAT increase, Lessing said she also expects the wealthy to be targeted in the budget.
“If VAT goes up, it is expected that taxes for the wealthy will be increased to soften the blow by showing that they are not just targeting those that can least afford to pay more tax.
“But these tax rises are more of a ‘cosmetic’ signal than a way to collect significantly more tax. History has shown us targeting the wealthy does not add much to the coffers.”
She said there was a decent chance that the top marginal rate would increase from 45% to 47% and that capital gains tax could also be hiked.
“An alternative to raising the top tax rate could be a wealth tax on assets each year or every fixed number of years. It’s unclear at this stage how it would be implemented or how long it would take to implement.”
Lessing concluded by saying hopefully not all the potential wealth taxes would be imposed.