That way you might soon pay more tax

Henry

Written by: Amanda Visser

The finance minister, Enoch Godongwana, this month has the unenviable task of simultaneously appeasing voters and pushing taxpayers a little harder for income in extremely difficult financial circumstances.

Therefore, experts expect that the government will make a plan this year to get more tax from salary earners, without increasing the tax rate.

Godongwana already announced in November last year that he would spend almost R57 billion (billion) expect less tax revenue than was budgeted for in February.

The government has budgeted for tax revenues of R1.85 trillion for the new tax year starting in April, and must therefore collect an additional R15 billion.

Then the government threatens to release a huge money-grubber like the national health insurance, for which the government will need almost R296 billion.

This means taxpayers have to brace themselves for tax increases of one kind or another.

Smaller tax base

Jean-Louis Nel, director at Van Huyssteens Commercial Attorneys, says the downward adjustment of R57 billion is mainly due to a shrinking tax base.

He expects a further contraction due to the long-term effects of load shedding on the economy as well as the effects of high interest rates on consumers’ disposable income.

This manifests in lower income from company profits and less tax from VAT.

Already in November, Godongwana adjusted the expected income from company tax for the 2023 tax year downwards by almost R36 billion and VAT by R26 billion.

The news that there will be little relief in 2024 is discouraging for obedient taxpayers. “Unfortunately, it is easier to raise taxes than to curb uncontrolled government spending, especially if it is an election year,” says Nel.

Tertius Troost, senior tax manager at Mazars, says that because it is an election year, the government will not dare to increase the VAT rate. Admittedly, this is the easiest way to fill the state coffers, but the most unpopular.

He is a big supporter of a spread (tiger) VAT rate, but the government, according to him, just does not have the political will to implement it. Troost proposes that goods and services that are mainly bought by higher income groups be taxed at a rate of 20% and that goods and services on which lower income groups spend their money be taxed at a rate of 10%. The basket of 0%‑rate goods is still retained.

ENSafrica’s tax team says a 1% increase in the VAT rate could mean almost R24 billion for the state coffers. This is more than the R15 billion that Godongwana needs.

The average VAT rate worldwide is around 20%. South Africa’s rate is currently only 15%.

The ENSafrica team does expect that the threshold for compulsory VAT registration will be increased from R1 million to R2 million. This threshold was last raised in 2008.

Tax experts agree that personal income tax rates will also remain unchanged. The top marginal rate is already 45%. However, experts expect that the government may be able to pull another rabbit out of the hat, by not fully adjusting salary scales to take inflation into account.

Last year, Godongwana gave relief of R15.7 billion by fully adjusting the tax scales.

This therefore means that salary earners can fall into a higher payment scale if they get an increase, but no provision has been made for fiscal drag.

Solidarity specifically pleaded with the minister on Friday to adjust personal income tax brackets this year by more than inflation. “Citizens are under great financial pressure. They certainly cannot afford to have their increases taxed more heavily than is already the case,” said Theuns du Buisson, economic researcher of the Solidarity Research Institute (SNI).

Better collection, management can solve problem

Kyle Mandy, head of tax policy at PwC, says the tax gap (the difference between what the South African Revenue Service can collect and what it does collect) is approximately R300 billion.

If the tax collector can only collect 25% of that, it can make a significant difference to South Africa’s fiscal position. This will leave plenty of room for tax relief and even lowering rates.

He says it will also help if the government manages money better and curbs corruption. “It is not that there is too little money, it is rather a case of inefficient spending,” says Mandy.

Du Buisson also believes that the problem can be solved by reducing expenses, rather than getting more money in.

“How is it that South Africa spends significantly more on education than most other countries, but our outcomes are simply pathetic? The same can be said of health care, policing and all sorts of other departments. The inputs and the outcomes do not add up.

“Every year the minister talks about how excessive expenses are going to be fixed, but we don’t see anything happening. The state’s salary account is the best example of that. The account itself is not necessarily as big a problem as the fact that the return, in terms of productive outcomes, is only there.”