News | South Africa | Government
South Africa’s overstretched taxpayers could be hit with yet another tax, if a prediction from one of the country’s leading tax consultancy firms come true.
Tax experts at auditing and tax firm Mazars said during a seminar on the possible outlook of the 2021 budget that government may introduce a Covid-19 vaccine tax, as options for boosting revenue collection dwindle with the ailing economy. They suggested the possibility that government could see this as one of the few options it had to tinker with revenue, in order to meets its budget requirements this year.
According to Mazars national head of taxation Mike Teuchert, the reduction in economic activity would undoubtedly have a knock on effect on tax takes for the public purse.
“It may be very tempting for government to introduce a Covid-19 vaccine tax, although I don’t recommend it,” said Teucherd.
He said it was possible given the political will to collect revenue for the vaccine, the idea of a vaccine tax may be popular with government. But given that medical aids would effectively pay around 40% of cost of the 50 million doses government aimed to procure, this could hardly be justified.
One way finance minister Tito Mboweni may try to raise revenue in a more subtle way would be to leave the individual tax tables unchanged and not adjust for inflation. Mazars estimated that government could raise a meagre R10 billion from that endeavour.
While the the ripple effect of the Covid-19 pandemic, coupled with one of the longest standing national lockdowns devastated the economy, some indicators showed signs of resilience.
Despite the void left by billions in sin taxes lost to the alcohol and cigarette bans, revenue collection held up impressively well according to the latest data. Revenue collection in December 2020 was R10 billion more than in December 2019, amounting to a 6% increase.
This was however later revised downward by over R200 billion, placing the country in a critical condition when it came to revenue and ultimately public funds.
Currently the firm has seen an uptick in South Africans trying to move their savings out of the country, as a new tax regulation will see future expats waiting three years to access their pensions.
But economist and head researcher at the Alternative Information Development Center Dick Forslund argued that there were ways of taxing the rich to raise the billions needed to fund the national roll out of vaccines.
“There are different alternatives here, but I think that if they suspended the tax credits that people have for paying for private medical care… which is over R30 billion in tax rebates. If you would suspend that rebate for taxable income coming down to R350 000, then basically you have the R20 billion for the vaccines.”
The introduction of the National Health Insurance in earnest and the gradual phasing out of private medical aids would be a future to consider in the new Covid-19 reality he suggested.
“It is because of this subsidy that private health survives, otherwise people would rather go to public health if it could be properly financed. But we have a lot of problems. Officially there are now around 40 000 vacancies in public health and that is why there is this deadly chaos.”
Loss of revenue to illicit trade may put the most pressure on government to find ways to collect more revenue from corporate and wealth tax.
Prior to the lockdown, there was already a thriving illicit economy built on illegal cigarettes, said Mazars tax partner, Bernard Sacks. This was only exacerbated by the ban on the sale of cigarettes imposed during the hard lock down period last year.
Manufacturers and distributors would have been paying little to no Vat, or corporate tax on the products. The ban cost the state revenue purse around R1,25 billion on excise duties alone. The ban on alcohol cost around double this amount, and allied to that was the loss in Vat.
Sacks opined that government also failed to use the time of the ban to clamp down on the illicit tobacco trade.
According to Sacks, Sars would need some law enforcement teeth and with that, the necessary tools to conduct proper investigations and prosecutions. Without this leverage, tax dodgers would continue to bleed the public purse.
“The agency is going to need the cooperation of the police and the military. Mboweni would have to allocate some of the scant budgetary resources to curb illicit trade,” he concluded.
Another threat to revenue for the public purse were the growing number of South Africa’s wealthiest residents who were emigrating with their millions. The top 125 000 richest people in South Africa paid an average of R1,2 million in personal income tax alone, on top of the money they spent and funnelled into the economy.
It was against this backdrop that introducing any new tax or increasing corporate taxes, which was a likely temptation, would be ill-advised, Sacks opined.
“I don’t expect that there is going to be any tax changes that will be of great significance. I don’t think there will be any new taxes introduced, though you may get a different view from Mike on the vaccine tax, but I don’t think that will be the case. The economy can’t , I think handle any new taxes,” he added.
The most probable revenue stream Mboweni may turn to in order to increase revenue without denting vulnerable taxpayers pockets too severely would be sin taxes.
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