Tax Experts are divided on whether tax increases will be a good or bad idea this week when Finance Minister Tito Mboweni tables his 2020/21 national budget. Industry experts believe there will be some new tax surprises but some experts think wealth tax will see major changes.

Funding for the COVID-19 vaccine rollout will probably have to come from increasing taxes from various other places or as an alternative.

The tax environment in South Africa amid the COVID-19 pandemic:

Mboweni’s 2020/21 budget will be the toughest he has ever presented to Parliament. His budget is overshadowed by a weak economy, an escalating debt to GDP ratio, a high unemployment rate and the COVID-19 pandemic.

The country’s economic outlook has deteriorated dismally, impacting revenue collection.

Mboweni will have a mammoth task on whether or not to increase taxes on the already strained consumer. Tax experts are not sure what kind of rabbit he will pull out of the hat.

Tax Director at Ernst and Young Mark Goulding believes increasing VAT will create political backlash hence the Minister’s options to increase tax are limited.

“However we do expect South African taxpayers will have a tough year ahead as SARS ramps up its efforts in its collection activities.  So we do not expect any tax increases in major taxes such as corporate tax, personal tax or VAT. South Africa’s tax rates are considered high by world standards and in our view, any rate increase will not yield any significant amount of additional tax revenue. The South African VAT rate does have some room compared to global standards but it’s unlikely the minister will use this option this year.”

Gigi Nyanin from the South African Institute of Chartered Accountant (SAICA) says she hopes there will be no major tax increase announcements.

“Rather than increase taxes, it would be wiser for government effective and efficient enforcement of tax evaders and most importantly, ensure clear and definitive measures to improve SARS capital and digital skills are introduced. What we would like to see from the Minister is complete focus on expenditure by cutting the wage bill.”

Wealth tax

Kubashni Moodley, a tax Expert from PKF, says she Mboweni will likely increase wealth tax.

“We all know that the only way to raise the budget is to get additional funding or to cut government spending. What we know for sure is that the SARS audit team has been very busy of late and we have seen many queries come through that are focusing on the transfer pricing and the commencement of lifestyle audits on high net worth individuals. There are all avenues of raising of additional taxes.”

However, Goulding disagrees.

“Completely new tax initiatives such as speculations around the wealth tax, we believe is very premature and will not be implemented at this time. High-income earners might see personal income tax burden if the Minister limits the annual relief for fiscal drag. The biggest focus we see this year is increased SARS activity. Taxpayers can expect more audits and inquiries and inevitably lead to more disputes. We expect multinational corporates and companies with cross-border operations to be the primary targets.”

Sugar tax

Meanwhile, some industry experts believe government will further increase sugar tax to get additional funding for COVID-19 vaccines.

In 2018, South Africa introduced a health promotion levy of about 11% on sugary products to help curb sugar consumption. The sugar tax has so far generated close to R6 billion for government.

It is estimated that if government doubles this levy it could generate an additional R2 billion to the fiscus.