FINANCE

South Africa needs to raise taxes – and the wealthy will most likely foot the bill

South African taxpayers should brace for the announcement of further tax hikes in Finance minister Tito Mboweni’s February budget speech, as the government grapples with a growing debt burden and revenue losses from the Covid-19 pandemic.

National Treasury has said that it plans to raise R40 billion through additional taxes over the next four financial years. R5 billion will be raised in 2021/22, R10 billion in 2022/23, R10 billion in 2023/24, and R15 billion in 2024/25.

In the medium-term budget policy statement (MTBPS) tabled in October, Finance minister Tito Mboweni said that tax collections for the current financial year would miss targets by a further R8.7 billion, bringing total gross tax revenue to R312.8 billion below the February 2020 Budget forecast.

There are several factors affecting revenue collection in the current financial year including, among others:

  • A decline in personal income tax due to lockdown;
  • Restrictions on tobacco and alcohol sales; and
  • Reduced VAT as a result of sharp decline in consumption.

Analysts and economists have said that any new or increased tax measures will likely fall on the wealthy. Other taxes that have been mentioned have been an increase to VAT,  implementing a once-off ‘solidarity’ tax, and ‘inheritance taxes’.

Wealth tax

Treasury has discussed the possibility of a wealth tax at multiple points in 2020, and 30% of respondents in an October Bloomberg survey see Mboweni signalling his intention to institute such a levy in February.

A study published by the World Inequality Lab this week showed that an annual wealth tax on the net worth of South Africa’s richest people could raise as much as R160 billion.

It would also narrow inequality in a nation where the most affluent 1% of the population own 55% of personal wealth,

Under the moderate tax scenario, about 350,000 individuals would be subject to the tax, with the level ranging from 3% to 7% depending on affluence. The top rate would apply to people with a net worth of above R146.89 million.

Raising R160 billion in tax would be equivalent to 3.5% of gross domestic product, the study said.

However, tax experts have warned against placing the full weight of the R40 billion tax collection on the country’s wealthy, saying that it will likely lead to these individuals – and their money – leaving South Africa.

The tax table from the budget review of 2020, showed that taxpayers earning in excess of R1.5 million annually, were paying R150 billion out of a total of R560 billion in personal taxes that was collected in the period. This equates to 27% of the total tax take.

Since there are only 125,000 people in this earnings category, this means that less than 1% of South Africa’s population of 58 million is contributing 27% of the total personal tax take.

A tax hike for vaccines?

The additional R40 billion that Treasury plans to raise over the coming years likely does not include any additional spending on procurement for a Covid-19 vaccine.

This week, Treasury said it is looking at a number of available options to raise money to pay for South Africa’s Covid-19 vaccines, including a possible tax hike.

In an interview with 702, Treasury director-general Dondo Mogajane said that South Africa typically gets money from two sources – taxes and borrowing from the market.

“None of the two options are ideal as you can imagine. However, at this point in time, we are facing a pandemic and the president confirmed that we will do anything possible to ensure we find the money,” he said.

Mogajane said that the reprioritisation of existing budgets was one option; a second option was to borrow more and increasing the deficit. The third option was taxing citizens to make up the shortfall.

He said that an official decision will be communicated in Finance minister Tito Mboweni’s budget on 24 February, and will be detailed thoroughly to indicate where the money comes from.


Read: Reserve Bank keeps rates unchanged as it warns of further waves of Covid-19

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