Treasury faces tough choices on tax increases

SPECULATION is swirling over what the Treasury will do to raise R44-billion in additional tax revenue over the next three years - without inflicting too much pain on a fragile economy.

SPECULATION is swirling over what the Treasury will do to raise R44-billion in additional tax revenue over the next three years - without inflicting too much pain on a fragile economy.

Finance Minister Nhlanhla Nene confirmed that there would be tax policy and administrative "reforms" to shore up flagging revenue when he unveiled his first medium-term budget policy statement on Wednesday - a strategy that was widely expected.

The changes will not be announced until the Treasury releases its annual budget in February. Officials said no decisions on the options had been made, although the targets had been set.

Nene said the Treasury aimed to raise at least R12-billion in 2015-16, R15-billion the year after and R17-billion in 2017-18, by which time growth was expected to have picked up.

But concern that the tax changes will weigh heavily on consumers, or erode legitimate corporate profits is probably misplaced.

"You want to make sure you don't impact adversely on growth. You want to make sure honorary people are not too closely affected," said Ismail Momoniat, the Treasury's deputy director-general for tax and financial sector policy.

"There's a range of options you can look at."

Momoniat said the additional revenue would be only a small portion of the overall tax intake.

The Treasury said that the recommendations of the Davis tax committee set up last year would inform the proposals and balance several policy objectives, "enhancing the progressive character of the fiscal system, improving tax efficiency and realising a structural improvement in revenue".

Barclays Africa economist Peter Worthington said reforms could focus on administrative measures to clamp down on corporate tax avoidance.

Areas of scrutiny were likely to include transfer pricing - the transfer of profits into a unit of a company in a lower-tax jurisdiction - and tax havens.

"A huge tax on consumption would undermine growth. But companies are very adept at shifting profits," he said.

VAT, mining tax and wealth tax are other options under consideration.