Author: Ayanda Masina (Shepstone & Wylie Attorneys)
The rand fell drastically at the end of last year with the firing of the South African Finance Minister, Nhlanhla Nene. South Africans started to wonder how this would affect them when the new Finance Minister, Pravin Gordhan delivers the 2016 budget speech. This was, however, not the first indicator that the country would be facing tax increases in 2016/2017. President Zuma’s agreement not to raise university fees on the back of the university student protests in October 2015 already had experts predicting significant tax implications for 2016/2017 e.g.: speculation that VAT will be increased – this was supported by the Davis Tax Committee in their interim report on VAT in July last year. The committee stated that raising VAT would be a more efficient way of boosting revenue than increasing direct taxes.
Government is facing a dilemma in deciding how taxpayers will fund the State as the increase in tax will be tricky this year due to South Africa’s weakened economy.
Government has to decide whether it should:
- Increase personal income tax again, bearing in mind how South Africans are already under strain;
- Increase corporate income tax at the risk of paralysing corporates;
- Increase wealth taxes like Capital Gains Tax and Estate Duty Dividends Tax (wealth taxes), keeping in mind that the percentage of wealthy South Africans is too low to fund the rest of the country, or
- Raise VAT.
The Government already has to defend the new tax legislation that gives effect to the tax harmonisation reforms of retirement funds. The Congress of South African Trade Unions (Cosatu) says the new law (which, according to them, affects the taxable deductions) amounts to an attack on workers. The Finance Ministry, however, says that the law is beneficial for workers, ensuring they don’t take their retirement out as a lump sum in order to avoid deficits later in their lifetime.
No one really likes thinking about tax, however, this year, we have a feeling everyone will not only be talking about it but they will definitely be watching the budget speech as if it were a sporting world cup.
This article first appeared on wylie.co.za.