South African taxpayers should prepare themselves for several tax increases this year in order for the government to plug the revenue deficit.
This is the warning from Ettiene Retief, chairman of the national tax and South African Revenue Service (SARS) committee at the South African Institute of Professional Accountants (SAIPA).
Finance Minister Malusi Gigaba estimated a tax revenue deficit of almost R51-billion in the 2017-18 tax year during his maiden Medium-Term Budget Speech in October last year.
The deficit is set to increase to R69-billion, or even more, in the tax year that starts at the end of this month — even without the additional income required to fund tertiary education for poor households.
Gigaba will present the budget on 21 February to Parliament.
Retief says taxpayers should expect adjustments to the current taxable income brackets which will increase tax collections without the need to increase the actual rates.
Last year the levels of all the taxable income brackets were increased by 1% and a new top personal income tax bracket of 45% for taxable incomes above R1,5-million per year was introduced.
Retief says it is “unlikely” that the top marginal rate will be increased any further. He refers to the “Laffer curve” which demonstrates that increasing taxes beyond a certain point is counterproductive, and revenue collection may even decline.
“An increase in the top marginal tax rate may result in increased efforts to evade tax by hiding income, or shifting income and wealth to other tax jurisdictions.”
Retief is not convinced that the time is right for a wealth tax. South Africa already has taxes on wealth accumulation such as capital gains tax, estate duty and property levy when acquiring a property.
The maximum rate of 45% already impacts on the tax on trusts, and on capital gains. “People (who fall into the top tax rate) are not only taxed at a higher rate on the income they earn, but it also impacts the tax they pay on their capital gains when disposing of assets.”
This year will see the introduction of the much-debated sugar tax, but at a lower rate as previously proposed. The lower rate will not only yield lower revenue collections as originally estimated but could negatively affect the intended purpose of the sugar tax as international research has indicated that a high tax rate is required.
Government has been warning that an increase is on the cards. “I would not be that surprised if it is increased,” says Retief. “The political environment is different from what it was just a few months ago. The economic climate has changed and growth prospects are slightly better, so perhaps it is now the time for an increase.”
A one percentage point increase to 15% could raise R20-billon.
The impact on the poor may be offset by the inclusion of more zero-rated items, or more targeted assistance for the poor. Previously it was announced that the zero-rating on fuel will be scrapped but was subject to consultation. It is unclear how much tax it could generate, given that businesses can claim back their VAT on fuel purchases.
If fuel was subject to standard rate VAT, domestic transport of passengers and luggage is exempt in terms of VAT, which means the owner of a taxi will not be able to claim back the VAT on fuel because of the scrapping of the VAT zero-rating. The cost will most probably be passed on to consumers.
Retief believes the increase in popularity and use of cryptocurrencies (such as Bitcoin, Ethereum, Litecoin, Ripple, and IOTA) should be addressed, as the lack of regulation and disclosure could be used to evade taxes and circumvent exchange controls.
The South African Revenue Service (SARS) has confirmed that it will clarify its position on the tax treatment of cryptocurrencies early in 2018.