No wriggle room for Pravin in hard times

05 February 2017 - 02:00 By ASHA SPECKMAN
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Finance Minister Pravin Gordhan at the Sunday Times Top 100 Companies Awards at the Sandton Convention Centre in November.
Finance Minister Pravin Gordhan at the Sunday Times Top 100 Companies Awards at the Sandton Convention Centre in November.
Image: MOELETSI MABE

Finance Minister Pravin Gordhan's budget tightrope may not be any easier than a year ago and he is expected to lean on taxpayers when he presents the 2017 budget in parliament later this month.

Since Gordhan was parachuted in a year ago following the dismissal of Nhlanhla Nene, demands on the fiscus have grown and the ever-present threat of a ploy to oust him from the top finance position continues to gain momentum, according to economists.

Added to this is the conundrum of maintaining a balance between filling state coffers while ensuring that a weak economy is not harmed further and that investors find the country an attractive destination for their capital.

Alan Mukoki, CEO of the South African Chamber of Commerce, said on Wednesday: "At this time increasing corporate income tax is not an idea that would make a lot of sense. The economy is almost stagnating, there is very little growth and very high unemployment."

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Higher taxes on companies discouraged investments and did not spur businesses to expand or create jobs, he said.

Gordhan is not expected to raise VAT, long mooted by economists and the Davis tax committee as an option, which, if increased by 1%, would yield an additional R15-billion. South Africa's VAT is lower than the 15%-16% global and African average.

But it is unlikely that it will be raised before national elections in 2019 - which will be a make-or-break poll for the weakened ruling party.

A hike in corporate tax also seems unlikely.

Zohra de Villiers, head of tax at KPMG South Africa, said: "Although personal income tax should not be increased - as the biggest contributor to tax revenue - the minister may not have a choice but to increase personal income tax to make it impact on the budget deficit."

De Villiers, like other economists, forecast a 1%-2% rise in the marginal tax rate, but the minister may again only target certain income brackets.

Andrew Wellsted, head of tax at Norton Rose Fulbright, said on possible tax hikes: "It's more difficult than normal to call. We're coming up to an election year. There's no clear philosophy from the ruling party as to exactly what they want to achieve."

Wellsted said there was scepticism about raising personal income tax.

"The tax base is smaller and the guys higher up the tax chain can structure around tax and so minimise what they pay.

"It's really going to come down to a coin toss about how much pressure they are under to collect and how much political pressure they are under to not raise VAT, which is always a difficult one for them," Wellsted said.

There were 19million personal income-tax payers by March 2016, according to a South African Revenue Service document published in November. In October the National Treasury projected a revenue shortfall of R23-billion for 2016-17 year and R28-billion for 2017-18.

South Africa's marginal tax rate of 41% is higher than the global average of 33%, "which immediately puts it at a disadvantage when it comes to attracting companies to relocate expatriate employees here, for South Africa to be the gateway into Africa and for high-net-worth individuals", De Villiers argued.

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She said international corporates were highly mobile and could decide to leave South Africa "at any time and relocate to countries with lower tax rates".

That may leave only the smaller taxes for Gordhan to focus on. The proposed sugar tax - 2.29c per gram of sugar in sugar-sweetened beverages - was debated in parliament this week and may be introduced next month.

The fuel levy and sin tax increases are expected to rise as usual. In last year's budget the fuel levy was raised by 30c a litre. In 2015, it was hiked by 30.5c a litre.

De Villiers said there may also be scope to increase the securities transfer tax, which was introduced in 2008 and has been levied at 0.25% since its inception.

Carbon tax is another one economists are watching for, as well as the special voluntary disclosure programme, which closes later this year. De Villiers said "a new way of taxing loans to trusts, introduced in last year's budget" would assist to plug the shortfall. It takes effect next month.

Either way, Gordhan has it rough all round.

Nomura economist Peter Attard Montalto said a cabinet reshuffle was imminent.

This supported a Business Day report this week that cited unnamed sources that President Jacob Zuma had vented his frustration at a three-day ANC lekgotla last week about the Treasury blocking funds for "certain projects".

The Zuma camp wanted access to the Treasury and especially for tight controls over the Public Investment Corporation to be eased, which "is going to be important in funding nuclear plans, driving transformation in the banking sector and other schemes", he said.

Cosatu spokesman Sizwe Pamla said middle-income earners were taking strain and were of the view that getting inflation-related salary adjustments would be "a struggle".

"We are definitely going to oppose an increase in income tax," Pamla said.

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