A R28-billion taxing problem

PUBLISHED: Wed, 22 Feb 2017 12:32:46 GMT
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All South Africans, especially the wealthy, had best tighten their belts.

“Slow economic growth has held us back and so decisive steps are needed to strengthen confidence, investment and growth.”

This was one of the key messages on tax given by Pravin Gordhan, Minister of Finance, during his 2017 Budget Speech in Parliament, in Cape Town today.

This year’s budget has to tackle a pesky problem – economic growth has shown ‘green roots’, with a 1,3% estimated growth in 2017, but it is not sufficient to address unemployment and poverty. 

“Government debt now stands at R2, 2 trillion, or 50.7% of GDP, interest payments are a rising share of expenditure. By acting now to stabilize debt we will ensure that future generations will not pay for today’s expenses, 20 or 30 years from now.”

It means Gordhan needed to raise R28 billion as well as reduce expenditure by R10 billion over the next year to ensure a sustainable recovery.  The concern of those in the streets was how government intended to raise it.

Those who will be hardest hit are the wealthy. People earning more than R1, 5million will now pay 45% personal tax. There will also be a 5% increase in dividends paid out to owners of companies to 20%, up from 15%.

“Wealth remains highly concentrated – 95% of wealth is in the hands of 10% of the population.” 

South Africans driving fuel guzzler vehicles will also be digging deeper into their wallets. Petrol will rise by 30c/liter under the general fuel levy, as well as an increase of 9c/liter will go towards the road accidents fund.    

Sin taxes, like alcohol and tobacco, also took a hit with increases of between 6% and 10%.

Two new levies will also be rolled out once they have been finalized in Parliament. A levy on sugary beverages will charge 2.1c per gram of sugar content above 4g per 100ml. While a proposed carbon tax, is still undergoing consideration.  

There is some relief. Medical tax credit rose with inflation. For the low income earner the tax free threshold was raised from R75,000 to R75,750. Those looking to invest their money in tax free savings accounts now have an annual allowance of R33,000, with no increase to their limits,  and the affordable housing threshold above which transfer duty is paid was moved from R750,000 to R900,000.

“For many years we have enjoyed the benefit of tax revenue collections outstripping economic growth. This contributed to expand public service delivery. This year, revenue has lagged behind the economy, leading to a R30 billion shortfall” says Gordhan.

The government has a tough budgetary juggling task ahead of them. High on their agenda is bailing out state owned enterprise South African Airways and the post office.  Financial management of Provinces have also undergone reviews, to eliminate ‘duplication of activities’; reduce spending on non-core goods and non-essential services.

“Though the fiscal envelope is constrained, billions of rands have been shifted to meet new needs. A substantial additional allocation to higher education is again proposed, adding R5 billion to the R32 billion previously announced.”

Government plans to clamp down on tax avoidance. This year government intends to sign a multilateral instrument to reduce the scope of aggressive tax avoidance activities. This includes automatic exchange of information between tax authorities and requiring multinational companies file detailed information with SARS on cross border activities.

“We rely on global cooperation to address trade imbalances, the abuse of tax havens and the coordination of financial stabilization efforts.”  

Gordhan says that SARS received disclosures of R3,8 billion in foreign assets, which will yield about R600 million, under the Special Voluntary Disclosure Programme which ends in August.

“Across all three spheres of government, and in state owned companies and public entities, those responsible for deciding how money is spent have to do so with scrupulous rigor and care. It is only right that is households and firms face tough choices in balancing their income and expenses; the same disciplines must be applied in public expenditure,” says Gordhan.

“…we face immense transformation challenges – we must overcome the inequalities and divisions of our societies. All South Africans must share in a more prosperous future.”

Tough times ahead for state and citizen alike.  

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