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Over the next two years, an additional R43 billion would need to be raised in taxes, Finance Minister Pravin Gordhan announced on Wednesday. Of that, R28 billion will be raised next year alone.
There is no clear indication how Treasury intends to do this, but there are some relatively obvious options. In the 2016 Budget Review in February, the options were given as either raising taxes or letting people drift into higher tax categories through “fiscal drag” – where the income tax categories do not get adjusted for inflation as they usually do.
Here are some of the major options on the table – and what Treasury could get from them:
Value-added tax: R15bn
According to the 2016 budget review, South Africa’s VAT rate is lower than most other jurisdictions, especially those with high levels of social spending. A table of 15 developed and developing economies shows that apart from Canada and Australia, which respectively have a 5% and 10% VAT rate, South Africa has the third-lowest VAT rate, at 14%. Kenya, Ghana and Rwanda all have higher rates.
Nazrien Kader, Deloitte managing partner for Africa taxation services, says that on the basis of the research done by the Davis Tax Committee, an increase of VAT from 14% to 15% would add R15 billion to tax revenue.
“This would, however, have the consequential impact of a reduction of 0.2% to 0.4% on gross domestic product as well as an increase in inflation,” says Kader.
Fiscal drag: R13.1bn
One way to increase tax revenue without actually increasing the tax rates is to let inflation do it for you. Kader says if tax tables are not amended to adjust for inflationary wage increases, Treasury could net an additional R13.1 billion based on this year’s budget estimate.
Kader says in this year’s budget, only partial relief was granted for fiscal drag, resulting in a net tax increase of R7.6 billion. The less relief provided, the more fiscal drag can contribute to additional revenue.
Sugar tax: R11bn
Although preliminary research suggests that about R11 billion could be raised through taxing sugar-sweetened drinks, Kader says this figure is debatable as there are many variables yet to be finalised.
Levies: R9bn
Kader says the usual inflation increases to the fuel levy excise duties should raise a further R9 billion based on this year’s revenues.
Wealth taxes: up to R5bn
The Davis Tax Committee has made several recommendations to restructure tax policy around trusts, estate duty and donations between spouses. The aim is to increase tax collection on intergenerational wealth transfers. Kader says these taxes would increase tax revenue between R3 billion and R5 billion per year.
Personal tax: R3.5bn
The Davis Tax Committee suggested an increase of the top marginal tax rate to 45%, which Kader says would generate close to R3.5 billion if applied to individuals earning more than R1.2 million per year.
Foreign assets: unknown
Kader says the special voluntary disclosure programme, which aims to bring undisclosed foreign investments held by South Africans into the tax net, could generate significant tax revenue, although the quantum is not known.
The last amnesty yielded R48 billion and also increased the taxable asset base.
