Tag: hike

Wealth tax and VAT hike being considered

With a massive tax shortfall in South Africa, new ways of drawing in revenue for the fiscus are being considered, including a wealth tax.

However, experts warn that a wealth tax is unlikely to cover even a quarter of South Africa’s current debt shortfall of R50 billion, meaning that a VAT increase in some form is also likely.

This is according to Judge Dennis Davis, who was speaking to BusinessDay ahead of a new wealth tax report set to be released by the Davis committee at the end of November.

Early signs indicate that a wealth tax could raise as little as R6-billion, meaning that it will have to be used in conjunction with other tax hikes.

“The problem with a wealth tax in SA is that it would be levied on an incredibly narrow base,” said Davis. “A huge amount of wealth in SA is also tied up in retirement funds, and we are busy investigating the implications of that.”

The committee is also concerned that a new wealth tax may penalise middle-class savings, and is aware that the South African Revenue Service (SARS) would need to institute a sophisticated system to administer it.

In comparison, Davis said that just a 1-percentage-point increase in the VAT rate (bringing it to 15%) would raise R20 billion.

Another option being mooted is a multi-tiered VAT system of 0%, 14% and 20%, said Davis.

This would result in a further twenty “necessities” being zero-rated, while luxury items such as smartphones could see a 20% VAT tax.

“It all comes down to the fact that we have to increase VAT,” said Davis. “Raising personal and company income tax isn’t going to get us there.”

Wealth tax

The Davis Tax Committee issued a media statement on 25 April 2017, calling for written submissions on the introduction of a possible wealth tax in South Africa.

This proposal arrived two months after an increase in the top income tax bracket for individuals by 4% to 45%, resulting in an effective capital gains tax (CGT) rate for individuals of 18%. This should be seen on the back of the increase the CGT rate by nearly 5% from 13.32% in 2014 to the current 18% in 2017.

Unlike income tax, where taxes flow from earnings (ie wages, salaries, profits, interest and rents), a wealth tax is generally understood to be a tax on the benefits derived from asset ownership.

The tax is to be paid on the market value of the assets owned year on year, whether or not such assets yield any income or differently put, it is typically a tax on unrealised income.

According to law firm ENSAfrica, while a wealth tax may undoubtedly be beneficial to address the divide between top and bottom level income earners, two main problems have been identified by some of the countries that have abolished this tax, namely the disclosure and valuation of the applicable “wealth”.

“Some of the reasons for its abolition have been cited as the disproportionately high administration and compliance costs associated with this form of tax, as well as capital flight from the country, said ENSAfrica.

“This sentiment is shared by France, where one report, established by the French Parliament, estimated that more than 500 people left the country in 2006 as a result of the impôt de solidarité sur la fortune (or ISF wealth tax). ”

“Looking at the above factors, it is difficult to see how a wealth tax will assist to improve South Africa’s weak economic growth and unemployment, in particular, if it incites a further flight of capital and a resultant decrease in economic activity,” it said.

Source: Supermarket & Retailer 

Motorists one of junk’s first victims

A fuel price increase will be the first major expense to hit South Africans as a result of a weaker rand‚ the Automobile Association of SA (AA) has warned.

The AA’s mid-month data forecasts that petrol will rise 55c a litre in May‚ while diesel will cost about 30c a litre more. Illuminating paraffin will cost an estimated 41c a litre extra.

The fuel-hike predictions are based on unaudited mid-month fuel price data released by the Central Energy Fund.

“The loss of confidence by investors and the sovereign ratings downgrades by ratings agencies Fitch and S&P‚ have led to the rand slipping against the US dollar‚ down from around R12.35 at the beginning of the month to its current position of around R13.40‚” said the AA’s Layton Beard.

The AA said the rand’s weakness largely contributed to the expected fuel price increase‚ with hikes in international petroleum prices accounting for the balance.

“However, there is no certainty that the impact of the downgrades has been fully priced into the economy. The picture for May could be substantially different‚” Beard said.

By Suthentira Govender for www.businesslive.co.za

Hike or no hike?

South Africa Reserve Bank Governor Lesetja Kganyago discusses currency manipulation, the performance of the rand, and the future of the central bank’s rate increase cycle.

South Africa’s central bank can’t yet call the end of its interest rate-increase cycle, even as the risks to inflation have eased since the Monetary Policy Committee’s January meeting, Governor Lesetja Kganyago says.

“It’s too early for me to make the call as to whether we are still on the tightening cycle or not,” Kganyago said in an interview with Bloomberg Television’s Jonathan Ferro. “We can’t say that” the increase cycle is now over.

Kganyago said in November the MPC may be close to the end of the tightening cycle in which it raised the benchmark lending rate by 200 basis points over two years to 7 percent by last March. This was in bid to bring price growth back to within the government’s target band after being outside it for most of last year as a drought raised food prices and the rand reached record lows.

The MPC, which will announce its next policy move on March 30, targets inflation between 3 percent and 6 percent.

Price growth eased to 6.6 percent in January, the first slowdown in five months, and five-year breakeven rates, a measure of inflation expectations, fell to the lowest since April 2015 on Friday. Oil and food price still pose risks, Kganyago said.

The risks to inflation have “definitely been mitigated compared to the previous policy-setting meeting,” he said. “Clearly, the recovery of the currency helps, but the rise in oil prices doesn’t help. Clearly the good rains help and the price of grains will come down, that helps, but that farmers are restocking their herds and meat prices remain high, doesn’t help.”

The rand was little change at 12.7712 per dollar by 3:02 p.m. in Johannesburg on Friday. Yields on rand-denominated bonds due December 2026 fell two basis points to 8.52 percent.

Economic growth in Africa’s most industrialized nation slumped to 0.3 percent for 2016, lower than government and central bank estimates, and the slowest rate since a recession seven years earlier

The central bank forecasts the economy will expand 1.1 percent this year, and 1.6 percent in 2018. There is still significant downside to growth, Kganyago said.

By Arabile Gumede for Bloomberg

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