FINANCE Minister Pravin Gordhan has been bombarded with advice and warnings ahead of his budget speech in Parliament, but one of his major headaches will be trying to expand the country’s tiny tax base.
Individual taxpayers, already groaning under their tax burden, are not necessarily looking forward to today’s speech, knowing all too well that where the one hand gives, the other hand takes away.
In last year’s budget Mr Gordhan gave effective relief of R4.3bn to individuals by way of adjustments for "bracket creep" and adjustments in monetary thresholds, but took R8.5bn by way of increases in the general fuel levy, sin taxes and the increase in the electricity levy.
Statistics show that although SA has 13.7-million registered taxpayers, the vast majority of these do not contribute to the tax revenue used by government to pay for its projects.
Mr Gordhan will be delivering his budget in a climate where taxpayers are getting hot under the collar because of their ever-increasing burden — and news from Stats SA this week that the number of company liquidations was 22.5% higher year on year last month will not help. That translates into fewer taxpayers who can foot the bill for government expenditure.
According to the Solidarity Research Institute’s senior economic researcher, Paul Joubert, the reality is that only 3.3-million taxpayers are paying 99% of all personal income tax.
The remaining 1% is paid by taxpayers whose income is below the tax threshold. Mr Joubert says of the 3.3-million, about 1.5-million (earning R200,000 and more) are responsible for 84% of all the personal income tax collected by the South African Revenue Service (SARS) on behalf of the state.
The number of taxpayers increased from 10.3-million in the 2011 tax year to 13.7-million in the current tax year.
According to Mr Joubert, the steep increase was merely the result of an "administrative change" and certainly does not mean that more people are contributing to the tax pot. "A very small number of South African taxpayers bear almost the entire weight of the South African state on their tired shoulders."
Tax revenue as a percentage of gross domestic product has remained above the accepted norm of 25% and was 27.7% in 2011, estimated to be 27.4% for this tax year and increased to 27.8% in the new tax year that starts on March 1.
Individuals contributed 34.6% and companies 20.3% to the total tax revenue.
It has been a harsh economic year for companies and their contribution is bound to dwindle. Adam Harris, a director at the legal services group Bowman Gilfillan, says the surge in company liquidations was due to voluntary liquidations, which increased by more than 74%. A compulsory liquidation takes place when a company or close corporation is wound up by an order of the court when liabilities exceed assets, or the entity is unable to pay its debts as and when they fall due for payment. A voluntary liquidation is when a company resolves of its own accord to wind up its affairs.
KPMG associate tax director Johan Troskie says the relationship between the government and business is worrying. He says the hostility towards business is a clear indication that the government has lost track of the role business should play in the country’s economic development.
"The affairs of some state enterprises are in dire straits, with large amounts of taxpayers’ money unwittingly being thrown at the problem, yet some government officials have a strange arrogance to threaten industries that their trading licences may be reviewed if they do not conduct themselves in accordance with government prescriptions," Mr Troskie says.
SA needs enabling legislation to assist companies to be successful. The constant criticism against other tax jurisdictions who are making it easy to do business and to attract foreign investors is shortsighted.
Mr Gordhan will do well by announcing measures aimed at growing the economy and in the process expanding a dwindling tax base, he adds.
He would like to see the immediate review of the headquarter company legislation, to improve SA’s competitiveness to a country like Mauritius. He suggests a corporate tax rate for headquarter companies at 10%. In Mauritius it is 3%.
He says the steps taken to make our headquarter regime more attractive have been too small. "We need a huge step."
Mr Troskie would also like to see Mr Gordhan "going out of his way" to ease the burden of doing business in SA, from registering as a taxpayer and a VAT vendor to filing a tax return.
Mr Troskie pleads with the minister not to increase the tax burden on the few individuals who are carrying the heaviest burden, but rather to make it easier for people to start a business, employ people and support them with less restrictive tax incentives to develop and train their workers.
PwC VAT leader Charles de Wet says many of the country’s financial woes can be solved with a slight increase in the value-added tax (VAT) rate. To make the increase more palatable more items can be zero-rated.
Although it is more manageable to have a short list of zero-rated items for VAT purposes, the advantages of an increase in tough times (in line with many other developing and developed countries) should not detract from the huge tax income a small increase in the VAT rate could offer the country.
It has been said that a 1% increase in the VAT rate could generate R16bn additional tax.
SARS needs to collect about R820bn in the 2012 tax year.
Pressure has been mounting from the SARS to enable it to meet its annual target, with taxpayers saying they have been receiving letters asking them to pay their tax debts.
The warning bells for tax collections had already rung in October last year when the finance minister announced collections for the 2012-13 tax year were expected to be R5bn less than what was budgeted for.