Super tax for uber-rich looms

The coming tax year will be a “watershed year” for tax hikes from a wide range of sources, maybe even a super tax for the uber-rich, a tax specialist has warned. Speaking at a Deloitte budget roundtable, Nazrien Kader, head of taxation services, said Finance Minister Pravin Gordhan must walk a tightrope like none of his predecessors when he takes the podium for the first budget speech of his new term.

South Africa’s economic growth prospects have deteriorated considerably since the Medium-Term Budget Policy Statement (MTBPS). Earlier this month, the International Monetary Fund (IMF) slashed its growth outlook for the year to 0.7% from an earlier 1.3%. Commentators have warned that the country’s sovereign credit rating may be downgraded to junk later this year.

Kader said economic conditions suggested a super tax bracket would be reintroduced. A super tax was also levied in the 1980s, but the bracket was adjusted downwards after a recommendation by the Katz Commission. Kader said a bracket of 43% to 45% could be announced. Highincome earners currently pay a rate of 41% on their taxable income above R701 300. The rate could be lowered again within three years, as South Africa’s finances stabilised, she said.

Billy Joubert, tax director and transfer pricing leader, warned any suggestions of personal income tax hikes must be accompanied by a serious commitment to curb wasteful spending. “I think the challenge to minister Gordhan is to generate taxes without penalising growth or exacerbating inequality,” Kader said.

Others would be watching the budget carefully to evaluate the consistency in messages from the commissioner of the South African Revenue Service (Sars), Tom Moyane, and the minister of finance. Gordhan, a former commissioner himself, reportedly halted Moyane’s efforts to restructure the revenue authority, Kader said. Kader said the inclusion rate for capital gains (currently 33.3% for individuals) might also be increased, to possibly include half or even two-thirds of capital gains as taxable income.

Kader rules out a so-called wealth tax, as advocated by French economist Thomas Piketty, although an increase in the capital gains tax inclusion rate and a marginal tax rate hike might already signal a step in this direction. A hike in sin taxes is also expected, probably much higher than inflation, while ad valorem taxes on luxury goods may also be adjusted upwards, Kader said. Kader did not expect a VAT hike.

Severus Smuts, indirect tax leader, said trade union Cosatu, which vehemently oppose a VAT hike, is already at loggerheads with government about some elements of the retirement reform legislation, which will come into effect on March 1.