Ricochet News

Treasury’s options to increase revenue is limited

By Nicole Venter - Dec 14, 2017
Treasury’s options to increase revenue is limited

It is expected that this year’s Mid-Term Budget Speech (MTBS) will reveal a revenue shortfall of between R35 billion and R50 billion as a result of South Africa’s growth and tax revenue collections underperforming again this year.

Mike Teuchert, National Head of Taxation at Mazars, comments that the main question this year will once again be about how Treasury plans to close the revenue gap.

“It certainly is difficult to say how Treasury is going to shore up the shortfall. It is, however, unlikely that we will see any tax increases materialising right now, but the MTBS will give us a glimpse of the changes that we will see in the 2018 Budget.”

The other major challenge that Finance Minister Malusi Gigaba currently faces, according to Teuchert, would be to identify where South Africa’s growth would come from, in light of the recent ratings downgrades, and the fact that the International Monetary Fund has cut South Africa’s growth forecast for 2017.

Teuchert adds that Treasury does not have much room to manoeuver in terms of suggesting increases to corporations or income taxes.

“We believe that one of the few options left to the Minister would perhaps be to look at increasing taxes on transactions. It is also important to keep in mind that any tax increases on the cards for next year might bring in some revenue, but be detrimental to increased growth.”

According to Teuchert, the MTBS will possibly also make it clear that a VAT increase is no longer avoidable.

“Before the 2017 Budget Speech we commented that while a VAT increase would be unpopular, it would be one of the most sensible ways to increase revenue. Looking at the current shortfall we believe that the chance of Treasury announcing planned increases to the VAT rate is becoming increasingly likely.”

News regarding the possible bailout of the state owned entities, Eskom and South African Airways are also highly anticipated, as well as further details on the National Health Insurance (NHI) system. Teuchert notes that there have been suggestions to eliminate the current tax rebates for individuals who pay medical aid, to help fund the proposed NHI.

“In our opinion, this is also not a viable plan. Once again, this measure may bring in some money in but it would not be sufficient to make a meaningful contribution towards the funding requirement.”

“We believe that Treasury may opt to once again borrow money to make up for the shortfall. Raising the national debt again may not be ideal, but it could just be the only real course of action left,” Teuchert concludes.

For more information, visit Mazars Port Elizabeth at 30 Bird Street, Central, Port Elizabeth, or call 041 501 9700. Also visit them at www.mazars.co.za