Experts in the country expect Finance Minister Pravin Gordhan to announce an increase in the fuel levy of over 50 cents a litre when he delivers his budget speech in Cape Town on Wednesday next week.
The minister finds himself under pressure in an economy which is not growing and that is coupled with falling tax collections. The increase is expected to raise additional revenue of R10 billion.
The 2017/2018 budget is seen by many as the most challenging budget to be tabled by the minister of finance since the advent of democracy.
The question that most have been asking is where is the minister likely to get the extra revenue that he needs.
Kyle Mandy, a tax policy leader at PWC (PricewaterhouseCoopers), expects the minister to announce a number of tax increases. He also expects the fuel levy to be increased by over 50 cents.
“We can’t see an increase in VAT. We have no choice but to see significant increases in the fuel levy, as we saw in the last couple of years. In the past two years we have seen an increase in terms of the ball park figure of 30 cents a litre. So in the current year it will have to be significantly much higher than that if the minister is going to raise a significant amount of tax through this.”
With companies already complaining about the high corporate tax, Mandy maintains that the minister is unlikely to increase it as some countries have started lowering it.
“Where can the minister find R28 or more billion rand? When it comes to business his options are limited. Looking at the corporate income tax the 28% is already high and by global standards, that is already high. The trend is now downwards and if he tries to increase it there will a number challenges due to the whole competitiveness issue.”
Most South Africans are already hard pressed and feel that they are heavily taxed. Despite this, tax expert Lesley O’Connell Xogo says the minister should consider increasing VAT. Although she acknowledges that this will hurt the poor, she believes that they could be compensated in other ways.
“I think it’s long overdue that he does increase the VAT rate. Compared to other countries, we are very low and even compared to other African countries we are actually the lowest. The question then is how do you give relief to the poor as they will be spending the bulk of their money on VAT.”
O’Connell Xogo says it might be difficult for the minister to do this given the political pressure that he has been under over the past months.
“He is definitely in a tight spot and maybe, to open the door, he could say he is considering the rating in two years’ time. To start that debate on how you do that. Other countries have done that; Japan, for instance, did that.”
– By Morafe Tabane
