Who will feel tax pain in Gordhan's Budget 2017?

2017-01-29 21:01 - Carin Smith
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Cape Town - Middle to high-income earners can expect further tax increases in the National Budget Speech next month, according to Patricia Williams, tax partner at Bowmans law firm.

Higher income earners could also feel the pain in relation to trusts and estate duty in the upcoming budget, she anticipates. The Davis Tax Committee Estate Duty Report's recommendations include increasing the estate duty rate to 25% for that part of an estate with a value over R30m and the removal of spousal rollover relief, in relation to estate duty, capital gains tax and donations tax - partially offset by an increase in the primary abatement for all estates.

In his mini budget of October 2016 Finance Minister Pravin Gordhan indicated that there would be tax increases of R13bn in 2017, and provisionally further tax increases of R15bn in 2018. These are in addition to the approximately R15bn tax increases that were introduced in 2016.

Williams expects the extension of the South African tax base to be a priority in 2017. The taxing of waiters and others who earn voluntary incomes from tips, for example, may come under scrutiny in the 2017 National Budget Speech.

"Restaurateurs have always argued that it is very difficult for them to know how much waiters receive in 'tips'. This might have been the case when most bills were paid in cash, but these days by far the most restaurant bills are paid via credit card, or other forms of electronic transfer of funds," said Williams.

This should enable restaurateurs to determine amounts received by waiters much more accurately. With a small amount of extra effort even cash receipts could be included in the reporting of 'tips'."

Broadening the tax base

In her view, one could expect developments on the broadening of the tax base through increased tax registration. The Tax Administration Act (TAA) allows the SA Revenue Service (Sars) to arrive, unannounced, at any premises where a Sars official has a reasonable belief that a trade or enterprise is being carried on. This would be to check the identity of the person occupying the premises, confirmation of tax registration status and confirmation of compliance with tax record keeping requirements.

“While Sars’ use of these provisions has been lower than was anticipated, increasing the 'spread' of taxes, so that the tax burden is shared more evenly amongst income earners, has become important during difficult times," explains Williams.  

She points out that one of the key factors highlighted in The African Tax Outlook (ATO) Report 2016 - published by the African Tax Administration Forum of which Sars is a member - is that “small taxpayers should not be overlooked”.  

Other tax predictions by Williams regarding the upcoming budget speech include a possible "super car" surtax to curb lavish spending and reduce carbon emissions and a branch profits tax at a minimum rate of 5% in terms of a cross-border context.

Lastly, she anticipates that there could possibly an increase in VAT announced in the budget speech.  

She points out that, while all indications are that the planned tax increases should not impact low income earners, the South African VAT rate, and contribution to total tax, is low compared to international norms.  

“The South African VAT rate of 14% is substantially lower than the Organisation for Economic Co-Operation and Development (OECD) average...which indicates that South Africa should consider increasing either VAT or excise duties,” she says.

Williams notes that options for VAT increases would include an overall increase in the VAT rate, combined with certain specific exemptions or zero-ratings to offset the negative impact on low income households.

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