2023 National Budget: All about the tax

Although the minister of finance announced last year that tax revenue for 2022/23 is estimated to exceed the budget by R83.5billion, the question of the year is where he will get the money for funding SOEs, mitigate the electricity crisis, meet requests for an increase in the social grants and the many other high-ticket items?

However, KPMG does not expect an increase in any of the tax rates although taxpayers can expect the usual inflationary adjustment to tax brackets, says Zohra de Villiers, head of global mobility services and employment tax advisory at KPMG.

The highest marginal tax rate for personal income tax is 45%, which is higher than the global and Africa average, which are currently in the lower 30s.

“Any further increases in personal income tax will result in additional pressure on already struggling households due to the after-effects of the pandemic, increased fuel prices, interest rate hikes and the electricity crisis.”

Although National Treasury previously indicated that it aims to reduce the rate over time, De Villiers says this can only be achieved if we broaden the tax base which comes from greater economic growth, increased employment and enhanced enforcement by Sars.

“Government and the private sector must work together to get more individuals employed to spread the tax burden across a larger number of taxpayers. We do not expect a wealth tax to be announced as it will result in taxing the same taxpayer group. The Sars commissioner also indicated earlier this month that we are unlikely to see a wealth tax introduced.”

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Sars is working for more tax for the budget

Sars has increased activity in compliance and enforcement and this will continue going forward. “SARS will continue with compliance and enforcement to ensure that all those who are liable to pay tax end up paying the correct amounts to SARS.”

De Villiers says KPMG also does not expect any changes to the corporate income tax rate. The rate was reduced from 28% to 27% and this will come into effect for most companies during 2023 or 2024.

“Even at 27%, our tax rate is higher than the global average of about 24%. To remain competitive and encourage the much-needed foreign investment to stimulate growth, Treasury may consider a further cut in future years.” 

She does not expect an increase in the VAT rate as it will have a negative impact on already struggling consumers. VAT impacts all consumers and, therefore, any talk of a VAT increase will be hugely unpopular.

The minister will also announce some highly anticipated incentives for households and businesses relating to the roll out of rooftop solar panels.

De Villiers does expect closer review of the expenditure management in local municipalities to stamp out corruption and mismanagement, which has been of concern for a number of years and it is time to take decisive action to ensure that taxpayers’ money is well managed and used as intended.

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The threat of disillusioned tax payers

Hannes van den Berg, CEO at Consult by Momentum, quotes Winston Churchill, who once famously said that “for a nation to try to tax itself into prosperity is like a man standing in a bucket and trying to lift himself up by the handle”.

He says while Sars may be proudly touting its improved tax revenue collection figures thanks to new measures designed to get errant citizens into line, we should be wary of the threat that disillusioned taxpayers pose to South Africa’s economic progress.

“To boost tax revenue collection that was falling up until a few short months ago, units were initiated to tackle possible leakages in the tax affairs of high-net-worth individuals and corporates. Sars commissioner Edward Kieswetter’s approach was more carrot than stick and, instead of wagging a finger, he curled it in invitation, beckoning consumers to share their tax affairs in an ‘open cards’ gambit that is now starting to pay dividends.”

Van den Berg says Sars is also taking no prisoners when it comes to indirect tax loopholes in the system, such as the sale of cigarettes produced outside the country and the VAT system is both proven and strong.

 “While Kieswetter said that Sars’ main objective is to improve administration competence and not increase the burden on taxpayers, it seems to have its eye set on those who are looking to move abroad, becoming far more stringent in its legislation concerning assets leaving the country.”

Sars also made clear its intention to identify more ‘low-hanging fruit’ to bolster its coffers, through auditing cases of ‘unexplained wealth’.

“The question is, will these measures prove to be sustainable, particularly given the fact that South Africans, where people face mounting pressure of load shedding, unemployment, escalating food and fuel costs and lack of service delivery, are becoming increasingly frustrated.”

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Are tax payers getting good value for their money?

The South African Institute of Chartered Accountants (SAICA) last year reportedly said that high tax-to-GDP ratio is not a problem where taxpayers are receiving good value for their money, but this is not a reality currently in South Africa.

“Therefore, while our tax rate might be on par with many other developing countries, people will always feel that they are paying too much if they do not see this value. Moreover, due to rising unemployment, our taxpayers face a high tax burden, which is to say that a small pool is responsible for driving the country.”

He thinks a tax revolt is unlikely simply because employers are mandated to deduct taxes from salaries before they are paid over to employees, immigration can increase.

“While Kieswetter did not appear too concerned about the 6 000 odd taxpayers that left the country, this pool will continue to grow and with the majority being young professionals, they might very well go on to become high earners, which means a loss for South Africa.”

Van den Berg says this year’s budget speech will again be a balancing act. “We will continue with the social relief of distress grant, which will need to be funded from somewhere. Given the pressure on consumers, this is unlikely to be in the form of personal income tax or corporate tax, and so the shortfall will probably be made up through indirect and sin taxes.”

The minister must show how funds will be allocated to address unemployment and South Africa will be watching to see exactly how the country plans to double down on crime, which, if successful, would no doubt boost our tourism.