Government takes aim at high-income earners

High-and middle-income taxpayers are likely to bear the brunt of the tax increases Finance Minister Pravin Gordhan will announce in his budget on 22 February 2017.

Experts are expecting that Gordhan will turn to further increases in the top marginal income tax rate, as well as hiking capital gains tax and estate duty, in his quest to find the extra R28bn of tax revenue he pencilled into his medium-term budget for the 2017-18 tax year.

This is to plug the sizeable revenue shortfall which has resulted from lower-than-expected economic growth. The number may be closer to R30bn since growth may again have fallen short of Treasury estimates, says KPMG chief economist Lullu Krugel.

Gordhan could bring in as much as R12bn-R15bn if he declines to give any relief for fiscal drag, and if he gives only partial relief, as he did in last year’s budget. Fiscal drag occurs when inflation-linked salary and wage hikes move people into brackets with higher effective tax rates.

The proposed sugar tax and a possible “supertax” on companies and affluent individuals are among the other measures being speculated about, as are further hikes in the fuel levy and excise taxes. But few expect the minister will opt for the easiest route to raise a large amount of extra revenue — hiking the rate of value added tax (VAT).

The Davis Tax Committee has said there is room to increase indirect taxes such as VAT, emphasising that if this were accompanied by more pro-poor government spending, the poor might be better off as a result — but an increase would be politically unpalatable.

Judge Dennis Davis said last week that a VAT increase might not be politically close this year but it would certainly come into focus as a medium-term option.

One wild card is the special voluntary disclosure programme — the tax and foreign exchange amnesty — which took effect from October 1 and runs until June, allowing those with undisclosed foreign assets to declare and pay tax and penalties on these.

Sanlam economic adviser Jac Laubscher said in a report that a one percentage point increase in the VAT rate would result in about R22bn in additional tax. Without a VAT hike, “increases in income and wealth-related taxes, including adjustments to marginal rates of personal income tax, will be unavoidable”. Any increase in corporate income tax would be unwise given the imperative to raise the country’s growth rate, Laubscher said.

Nazrien Kader, head of tax at Deloitte, said the minister would have to explore all avenues and there was a global trend to wealth taxes and sugar taxes. But while she expected Gordhan might look to a one-off “surcharge” for companies and high-income individuals, along the lines of the transitional levy the new democratic government implemented in 1995-96, others expect a “supertax” for the wealthy could instead take the form of higher capital gains or dividend taxes, and/or a higher maximum marginal rate.

Macquarie economist Elna Moolman suggests a two percentage point increase in the maximum marginal rate of income tax for people earning more than R1m a year could bring in R4.5bn. She expects a package of tax hikes that will aim to affect lower-income groups as little as possible but will target middle-and high-income taxpayers.

One wild card is the special voluntary disclosure programme — the tax and foreign exchange amnesty — which took effect from October 1 and runs until June, allowing those with undisclosed foreign assets to declare and pay tax and penalties on these.

Davis suggested last year this could raise as much as R10bn-R15bn and he repeated this again last week, saying indications from banks overseas were that this was attainable. It was too early for the finance minister to budget for the special voluntary disclosure programme in the current 2017-18 fiscal year.

The Davis committee has launched a probe into SA’s tax administration system. Davis said it focused on whether the model the Katz Commission recommended in the 1990s was still appropriate in 2017, and whether the revenue service was positioned to implement plans to target high net-worth taxpayers, base erosion and profit shifting.

By Hilary Joffe for www.businesslive.co.za

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My Office News Ⓒ 2017 - Designed by A Collective


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