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Tax hike warning for 2024 –




Finance Minister Enoch Godongwana says hiking personal and corporate tax in 2024 is still on the table, even though it’s likely to be a tough call by Treasury.

Speaking to SABC News on the sidelines of the World Economic Forum in Davos, Godongwana said that hiking taxes in the current economic environment in South Africa would be difficult – but he couldn’t rule it out as a revenue source.

“Increasing taxes in this environment is a difficult exercise. I’m not ruling it out, but it is a difficult exercise,” he said.

“Although the government cut corporate taxes in 2022, putting them back up would be very hard,” he said.

“Additionally, consumers in South Africa are in a tight space now for personal income tax. That’s also going to be a difficult area to go into.

“I can tell you now, we are operating in a fairly constrained fiscal space, so the message we are likely to put across in February is going to be a difficult one,” he added.

Finding money

In his mid-term budget tabled in October, the minister said he would raise borrowing, cut costs, and increase taxes amid warnings from the Treasury that it was running out of money and debt was spiralling out of control.

The mid-term budget pencilled in an additional R15 billion to be raised by taxes in 2024/25, but analysts noted that this could likely be covered by not moving the tax brackets to account for inflation.

South Africa’s government is facing a deficit of around R347 billion for the 2023/24 financial year – over 40% more than the previous year.

It currently stands at R312 billion, while the revised deficit for the full fiscal year is projected at R347 billion – a substantial increase from the R247 billion deficit in 2022/23.

Investec chief economist Annabel Bishop noted that gross loan debt is projected at 74.7% of GDP for 2023/24, significantly up from 70.9% in 2022/23.

The escalation of government debt is particularly egregious when considering that debt was sitting at only 23% of GDP in 2009.

Put differently, budget projections show that for every R1 the government spends, 22 cents goes off to paying debts. This has risen from 7 cents in 2009.

Possible tax sources

Following the mid-term budget in October, the Parliamentary Budget Office (PBO) also noted the potential of increased taxes in 2024, stating that the National Treasury is shooting itself in the foot by trying to solve South Africa’s budget problems by cutting spending on services and public departments.

The office, which is a support structure for the finance and appropriation committees in both houses of Parliament, acknowledged the pressure on government revenues but argued that South Africa – as one of the most unequal countries in the world – has room to draw more tax revenue from its “relatively broad tax base”.

The budget office said there are several potential areas for more tax to be collected, including:

  • An “excess profits tax” – which could be imposed on companies that used the inflation upsurge to boost profits to make up for their Covid-19 losses. Excess profits from the interest rate hikes could also be targetted.
  • Windfall taxes for sectors that benefitted from the commodities boom
  • A review of tax incentives and the removal of those that are no longer effective
  • A progressive tax on wealth
  • Intensified taxation of donations and estate duties.
  • Hiked carbon tax
  • Widenend property tax base

However, many experts, including renowned economist Dawie Roodt, believe increasing taxes in South Africa would do more harm than good.

According to Roodt, only 1.12% of taxpayers (roughly 163,702 South Africans) pay 30% of total personal income taxes in the country, while 19% pay a whopping 87% of total personal income taxes.

Additionally, a staggering 0.09% of corporate taxpayers (only 770 companies) pay 62.5% of total corporate income tax, with 4.4% paying 95% of total CIT.

“This means the country has an alarmingly narrow tax base, which is a massive concern for the state’s finances. You cannot increase this.

“If this increases, the tax base will collapse as many of the 1.12%, as well as businesses, will simply leave the country – which they are already doing,” said Roodt.

Read: South Africa risks another major own-goal

Full Story Source: Tax hike warning for 2024 – BusinessTech

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