Gordhan’s mammoth task

Finance minister Pravin Gordhan will have a mammoth task on his shoulders when he takes to the podium to deliver his first Budget Speech of his new term: Convincing taxpayers that government is committed to running a tight ship and using their money in a transparent, efficient and accountable manner.

This comes against the background of a deteriorating economic environment and expectations that tax hikes will be an inevitable outcome on February 24.

The World Bank on Tuesday revised South Africa’s economic growth expectations for 2016 to 0.8% from a previous 1.4%. This is in line with a prediction of the International Monetary Fund (IMF), which lowered its GDP forecast for the year to 0.7% from 1.3% in October.

The deteriorating economic and rising inflation outlook will put pressure on government to find additional revenue sources and to curb spending, especially as rating agencies keep a watchful eye on the country’s fiscal position.

Charl Niemand, head of indirect tax at SizweNtsalubaGobodo, says if there was a good story to be told around government spending and transparency, there would be less resistance to proposals to hike taxes like VAT for example.

He says the political opposition towards an economic reality has now grown into an economic resistance as well. The private sector and global investors are calling for government to be held accountable.

Niemand says the Department of Trade and Industry (dti) is an excellent vehicle to encourage business growth and SMME development, but there is often a lot of red tape involved in accessing the funds.

“I think we are getting towards that point where our government needs to help business do business.”

This will increase business activity, competitiveness and drive employment, which will ultimately lead to higher tax revenues, he says.

It will also help to attract foreign investment, but at the moment some of these firms are reconsidering if they should be in South Africa, Kemp Munnik, head of taxation services at SizweNtsalubaGobodo, adds.

Niemand says local government has a key role to play, as businesses depend on the electricity supplied by municipalities, but considering the state of many municipalities and the number of qualified reports that have been issued, this is quite challenging.

South Africa has reached a point where it needs to be careful – specifically from an indirect tax perspective (for example VAT or import duties) – to use tax hikes as a revenue driver without really addressing operational failures, he says.

“Everything comes down to maintenance, execution [and] accountability.”

Taxes have to be considered in combination with service delivery and can’t be assessed independently. Taxpayers won’t mind paying tax if service delivery is adequate and they can do business efficiently, Munnik says.

Niemand says other tax jurisdictions are competing to attract business – and African countries like Ghana, Kenya and Nigeria have become a big focus area for multinational companies potentially looking to use it as a regional hub. Some African countries also offer more competitive tax rates than South Africa.

It is not easy for foreign companies to set up shop in South Africa and get their tax registration in order, adds Munnik.

Niemand says theoretically South Africa is well-placed to attract business, the rules, banking systems and infrastructure are in place – it is the execution that is lacking.

“There is a direct correlation between the ease of doing business and tax revenue and business morale,” Niemand says.

Business is speaking up and asking government to make it easier to do business before they pay any more taxes, he says.

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