SAICA’s Muneer Hassan: Enough already – too heavy a tax burden on individuals

In this Budget 2015 review, SAICA's Muneer Hassan frets about the way Minister of Finance Nhlanhla Nene defaulted to plucking his golden goose – individuals – for the money he needed to balance Treasury's books. Hassan says SA's already uncompetitive top marginal tax rate has become even more so, with the new 41% comparing poorly with the global average of around 32%.  – AH

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Muneer Hassan from SAICA is with us on the line. Muneer, it's been a busy day for people in the accounting profession because I suppose, once a year, you get to see what's going to happen to the national accounts, and the accountants are the best positioned to unpack everything. From your perspective, what was the highlight?

Thanks Alec. I think what we've seen today is quite a good balancing act from the Minister's side. He mentioned in the medium-term budget policy statement a few months ago, towards the end of last year, that he needed R12bn and he certainly got that. He got about R16.8bn by increasing individual taxes. As well as a huge chunk on adding a huge chunk the fuel and the Accident Fund Levies, a big amount of 80 cents on the litre, going up over there. I think in totality he certainly has what he meant to do and that is to achieve that R12bn mark that he was aiming for.

That Road Accident Levy was a shock, I guess for anybody excepting those inside Treasury. 50 cents a litre and it doesn't appear in the public accounts yet. That's a R10bn chunk that's going to be going into the Road Accident Fund, which is a R100bn in the red. It sounds like it's in a lot of trouble.

I think it is Alec. I think there's lots of issues over there. It is certainly a funding mechanism to assist the Road Accident Fund. We know that, like you've correctly pointed out, that they have issues. That they have issues, they have funding issues, they have issues of meeting the deadlines as well, so I think this is almost like a saviour from their side as well, to say 'look we acknowledge that there is assistance needed in this regard' and then to enjoy the lifeline.

We were also hoping to see some good cuts in Government spending, but employee compensation has been budgeted to increase seven-point-seven percent, with inflation at just four-and-half percent. That looks a bit steep.

I think it is. Just across the board, if we just look at Government spending, he is trying to balance the books and reduce that budget deficit as well. In addition obviously, he is trying to stimulate the economy, so he can't actually cut spending in totality because if he does that then he's talking of a three percent growth rate moving towards that. It's currently about two percent.

What about your members, now SAICA Members are chartered accountants, they would be in probably that top three percent of taxpayers who pay one-third of all personal income tax. Do you think they're going to be happy enough with this Budget?

I think, Alec, all individuals are going to be a bit shocked up by it because at the end of the day, as you know, the big chunk of the collections from the tax pot, if you want to call it that, it comes from the individuals. At the moment, we've got about 35 percent contribution to the pot, from the individual side. Again, we've turned back to the golden goose. We've gone back to those that did give us the money in the past. At the lower end, if you look at the mass and if you're below about R500k taxable income, and you're below 65 then you are probably still coming out with a saving in taxes after taking into account the rebates, as well as the fiscal drag, which is introduced onto the table. However, the moment you go above R500k taxable income you are going to be paying more taxes and that is the sad part of the story.

Those are the people, unfortunately, who are mobile internationally.  

That's true because when we also look at it from SAICA's perspective; we are now sitting at a 41 percent maximum marginal rate. When we compared it to the Africa and global average, that is 32 percent, and if we're looking at an average of 32 percent at that rate, so we are already beating that by way far. The question is are we going back to the old days? Are we going back to 45 percent? Although we've come from there, we've literally just come down to 40.

I guess the other thing was on the Fuel Levy. That now moves up to 41 percent of the pump price, which is going in taxes. It was as low as 28 percent last year, so that kind of puts into perspective how much tax is going to be sucked out of our petrol.

That's true, and Alec, when we look at it in this perspective; it is all the individuals that's funding this. It is back to the individual, so we got an increase in the tax rate for the individuals, and then when he goes through, to fill up again, he gets another chunk to put out again.

Muneer, what about the benefits for microenterprises, how exactly does that work because just reading through the documentation and listening to the Minister, up to R1m now, if you have a turnover of R1m. Your taxes are pretty much going to halve.

True, so I think they're looking at stimulating that environment and the economy, from that perspective. They are throwing quite a lot of relief to the micro businesses. They're also from recent comments to the Davis Tax Committee as well, they will take that on board and make recommendations that comes through there, saying that even the R1m needs to be increased. They really want to create a simplistic solution for the micro business and really free up, if you want to call it, any tax burden. The issue that we still have, from our side Alec, is that even at the small business tax regime, yes, it is very good and all well and good to actually stimulate and give incentives, from a tax perspective. The issue, however, is there's a lot of red tape in these company's compliance costs and compliance burdens, so just going into a SARS office, and coming out, and walking out with a registration or a registered VAT number or an income tax number. Those sort of things should be looked at as well, quite microscopically.

I've been working for 18 months, I'll have you know Muneer, to try and get my VAT number and every time you go there there's another issue.

That's the point Alec and it should really be the McDonald's approach. No matter which SARS office you walk into. You should be able to walk in with a set of documents, which is clearly articulated, and know that, when you walk out, you're going to come out with a VAT number, on the other end.

There is some progress though, as far as that technology is concerned. Interesting to see that the tenders and it was hidden away there, at the moment all Government tenders have to be published in the newspaper. They're going to go online, so we have transparency on the one end, and they'll probably save a bit of money on advertising.

True and I think also the speed at which it actually comes out will be much faster. That links another systematic issue that we've been grappling with, particularly from SAICA and our members as well, and it's the issue of Tax Clearance Certificates because all tenders requires a Tax Clearance Certificate, so hopefully that's going to be looked at in tandem with this, the new platform for tenders that they're looking at. That it will be a seamless approach when one does go out on the tender.

You said the highlight was that it was a pretty good balancing act. What was the lowlight for you in this Budget?

I think the highlight could actually be said to be the lowlight, and I think the point there is, there's a big squeeze on the individual again and that's the bigger issue. It's almost as if the Minister had defaulted to the drawing to the drawing board, and that's to say 'where am I going to get the money'. He can't touch VAT because that's going to affect the masses. He couldn't touch company tax, clearly because, from a competitive perspective and wanting to grow the economy with foreign direct investment. That wasn't an alternative, so I think the lowlight, in a sense, comes from the same highlight, and that's the fact that the individual is going bear the chunk of the taxes again, going forward. It's back to going forward, like I said, it's like a default position.

The other thing was in October the economic growth was being estimated at two-and-a-half percent, just five months later it's down to two percent, and there was nothing in this Budget, from my perspective that reflected that we're in a bit of a problem area and we needed something dramatic, nothing dramatic on structural issues. Was this also something that came to your attention?

It did Alec. It is a worry because if we look at what they're predicting in terms of, I've just looked at some of the numbers going forward, in terms of the revenue projections. Last year we came in at about R900bn, and they added the chunk, what did they add? A ten percent to that there, they've now revised it down, in today's Budget, to eight-point-eight percent, so they've actually upped it to about R979bn that SARS needs to collect by the end of next month. Then if we look budgeting even further than that, over the next couple of years, we are moving way over the R1trn mark. When you talk of numbers like two-and-a-half percent growth or three percent growth, I think the Minister mentioned this afternoon is what they're targeting now. How does that equate to the revenue collections on the other side, if the economy is not growing at that rate? That's the dichotomy we're going to find ourselves in.

Muneer Hassan is with SAICA and this podcast was made possible by BrightRock, the company that introduced the first ever needs-matched life insurance.