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  • Finance minister Tito Mboweni warned that R40 billion in tax hikes may have to be enforced in the next four years.
  • Government will earn R300 billion less than expected in tax this year due to the impact of the coronavirus pandemic.
  • The first round of tax hikes will be announced in February.

In his new supplementary national budget, finance minister Tito Mboweni has warned that taxes will be increased by R5 billion next year, and R10 billion in the following year.

In 2023/2024, taxes may be hiked by another R10 billion, and with an almighty R15 billion in 2024/25.

Mboweni said that the tax hikes – along with spending cuts of R230 billion over the next two years – will be necessary as a result of the sharp decline in tax revenue this year. Due to the economic impact of the global pandemic, Treasury expects to miss its tax target by more than R300 billion this year.

Government is spending far more than it collects in revenue, Treasury warned. As a result, debt has mushroomed. Gross government debt will rise to almost 82% of GDP this year, from around 64% last year. 

Details about the tax proposals will be announced in February next year.

Treasury’s expected tax hike of R5 billion next year is not a large amount, in historic terms – and probably won’t mean a higher VAT rate, says PricewaterhouseCoopers tax partner Charles de Wet. A hike of one percentage point in VAT should earn government more than R20 billion.

This week, EY tax partner Osman Mollagee said that Mboweni could adjust the progressive personal income tax tables so that the higher income earners pay even more tax while granting greater relief at the lower end.

After five years of large tax increases, South Africans saw some tax relief this year. But this will now come to an abrupt halt. 

“Given the extent of fiscal consolidation now required, however, both expenditure reductions and tax increases are necessary to stabilise debt,” Treasury said in a statement.

“We have accumulated far too much debt; this downturn will add more. This year, out of every rand that we pay in tax, 21 cents goes to paying the interest on our past debts,” warned Mboweni.

If this trend is not reversed, South Africa is likely to face a sovereign debt crisis, Treasury said.

The new budget includes references to certain projects and programmes being suspended, and reprioritisation of spending, but there are few details on big spending cuts.

“While stability in tax is important and limited announcements were expected, the lack of any substantive comment on revenue sources is disappointing,” says De Wet. “Even on the expenditure side there were too few details on how savings would be achieved and how to balance the budget.”

Mboweni’s new budget did not include any reference to additional bailout for SAA, which is required as part of its business rescue plan. 

At a media conference following Mboweni’s budget speech, SARS commissioner Edward Kieswetter said that tax authorities will crack down on companies that are not complying with tax regulations, for example by not paying SARS pay-as-you-earn tax collected from their staff.

“We have seen general tax compliance levels slipping,” says Kieswetter.

There will also be a focus on aggressive tax planning using transfer pricing. SARS will also focus on eliminating syndicated fraud related to VAT refunds and import valuations, and use third-party data to find non-compliant taxpayers. 

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