Tax hikes proposed for South Africa

A government economic recovery program, due to be presented by president Cyril Ramaphosa this week, proposes a number of tax increases for the country.

The more than 100-page document, which has been seen by Bloomberg, is an attempt to counter the effect of the Covid-19 pandemic that is expected to result in South Africa’s biggest economic contraction in almost nine decades.

The document, prepared by the President’s Economic Advisory Council, proposes a number of tax hikes and changes be considered, including:

  • Increases to the fuel levy and estate taxes;
  • A three-year ‘solidarity tax’ that would increase taxes for higher earners;
  • The introduction of a basic-income grant that could cost R243 billion a year and would necessitate tax increases;
  • Pension funds and other private investors backing infrastructure projects if there is a clear pipeline for the next 10 to 20 years.

These proposed changes align with comments made by the National Treasury in a July parliamentary presentation.

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

In his presentation, 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.

In June, Mboweni told selected clients 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.

In South Africa, the top income-tax rate is 45%, corporate tax is 28% and VAT is 15%.

Read: Taxpayers to foot the bill for proposed R243 billion universal income programme in South Africa

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