The world is changing fast and to keep up you need local knowledge with global context.
It’s a compelling budget argument – don’t hit the employers any harder with tax and risk them shedding jobs or freezing salaries at current levels – rather increase the long-untouched low VAT, spread the load and boost the economy. It flies in the face of a socialist view of the world where the rich should perforce share more and more of their moolah with the historically less privileged. Top tax consultant Tertius Troost, says rather take advantage of our globally low VAT and let everybody contribute to the ambitious budget targets. Raising individual taxes for those in the upper income brackets hits those who employ others hardest. Whether it’s a handful or thousands; it all adds up. Rather let the water flow down the sides of the pyramid than risk degrading the edifice itself with the devastating historical effects we’ve seen when socialist solutions were attempted in North Korea and Russia. A flat line with no peaks on the horizon is just that – no economic heartbeat. Nobody likes to witness the ANC fund-raising dinners/business jamborees or the distasteful annual migration of thousands of lobbyists to Washington just prior to the legislative season. The pure weight of lemmings flocking to Washington to curry favour works – and if Donald Trump has his way – will lead to proportionately even less tax for the wealthy corporates than those lower down the food-creation chain. But a VAT increase, where possible, might just be a more democratic way of keeping food in everyone’s mouths, while still getting bang-for-buck from the super-wealthy. Just one more day and we’ll all know… – Chris Bateman
Although higher taxes on corporates and the super-rich may be popular ideas, they may be detrimental to the economy and raising value-added tax (VAT) may prove a much fairer and quicker way to increase revenue, said Tertius Troost, a tax consultant for Mazars.
According to Troost, VAT has remained unchanged for quite some time. “It is also widely known that South Africa’s VAT rate is low when compared to other African countries, which is why we believe there is scope to increase.”
With Treasury’s stated goal to raise R43bn over the next two years, the long-term effects of every possible tax change need serious consideration.
“Some of the most popular tax changes that have been discussed in the media include measures like new tax brackets for high-net-worth individuals and increases in corporate tax, which may in fact negatively affect the economy in the long-run. At the same time, the tax increases that seem to affect the average consumer the most, just may be the most viable option,” Troost said.
There is currently a global trend towards lower tax rates, with countries like the UK and the US proposing to cut corporate tax to below 15%. “Reducing the corporate tax rate encourages growth and increases jobs, which translates to increased revenue collection from individuals.”
Unfortunately, South Africa is unable to follow this global trend as a result of its vast budget deficit, said Troost.
“Any upward adjustments of these rates would result in South Africa becoming less competitive internationally which will decrease foreign investment that is vital to the country. Luckily, I believe that Treasury also sees this issue.”
Pravin Gordhan will inevitably increase the sin taxes – alcohol/cigarettes. VAT increase a possibility but could hit the poor on non basics
— Sure Kamhunga (@sure_kamhunga) February 19, 2017
A new, so-called super tax bracket may also not be a permanent solution, he argued.
“South Africa has imposed super tax brackets in the past and these have had some success historically. It is a decision that Treasury should not make lightly. Individual income tax is the simplest source of revenue to adjust but it was already raised two years ago. It will be difficult to justify any increase since they are not able to show an improvement in curbing wasteful expenditure and combating corruption,” he said.
Treasury will need to balance its need to raise gross tax revenue in the short term with the need to encourage increased investment and growth in the country.
Raising taxes on high-net-worth individuals may actually drive them to emigrate to more tax-favourable jurisdictions, which means taking their money out of the country.
An increase in VAT is a tax that affects all classes of consumers, which is why Treasury would probably encounter pushback if they plan on increasing it, Troost pointed out.
Talks of Gordhan-discussion at NEC today, move to get Molefe in parliament – aimed at putting pressure on the minister before budget speech
— Jacob (@jacobrooi2) February 20, 2017
Its effect on lower income groups also has political implications. An increase in VAT will need to include amendments to exclude more products consumed by the lowest income classes.
“Tactically I believe that Treasury’s best move would be to announce a 2% increase in VAT and to adjust that number down to 1% after the initial pushback from consumers,” Troost said. – Fin24
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