No tax hikes proposed for 2019 in medium-term budget
The Treasury has proposed that white-bread flour, cake flour and sanitary pads be zero-rated for VAT from April 1 2019
The government is looking to give taxpayers a reprieve in 2019.
According to the medium-term budget policy statement (MTBPS) released on Wednesday, “no additional tax increases are proposed at this time”.
The Treasury said it would avoid increases in the major tax instruments “unless the economic environment requires it”.
“Following years of slow spending growth and tax increases, there is little room for large fiscal adjustments,” the budget statement reads.
“It was the only choice they could make. They would have had a lot of pushback on any further tax hikes,” said Natalie Napier, a tax partner at Hogan Lovells.
Currently, the revenue projections assume no change to tax rates, but provide for annual adjustments to personal income tax brackets, levies and excise duties in line with inflation.
Revenue collections to the end of September grew 10.7%. However, SA’s move into a recession for the first time since the global financial crisis, coupled with a once-off payment of overdue VAT refunds, will result in a revenue shortfall of R27.4bn.
VAT refunds account for R20bn, while R7.4bn reflects lower corporate tax and personal income tax.
“The refund problem is a legacy from practices that became entrenched. We weren’t aware of the extent of refunds not paid out,” the Treasury’s head of tax and financial sector policy, Ismail Momoniat, said ahead of the speech.
Momoniat said in the last four years, SARS just wanted to “show the world” they had met the targets.
“There was a cabal running SARS and making decisions," he said.
“It’s the holding back of refunds that’s come home to roost. That was somewhat of a shock, we didn’t know that extent and that has filtered down into the budget deficit,” PricewaterhouseCoopers (PwC) head of tax policy Kyle Mandy said.
Treasury is now forecasting a budget deficit of 4%, considerably higher than the 3.6% anticipated in February.
The refunds, however, will provide a much-needed boost to the real economy, finance minister Tito Mboweni said in his budget speech in parliament.
“A big part of the shortfall is actually a policy decision to improve VAT administration, with the Treasury now committing to pay all VAT refunds within 21 days. This is good news for the economy in general, even if not for the fiscus,” Absa senior economist Peter Worthington said.
The Treasury also expects shortfalls of R24.7bn in 2019-2020 and R33bn in 2020-2021.
The government has collected less tax than expected in recent years and South Africans have been hit hard by incremental tax increases. In February, the controversial decision was made to raise the VAT rate for the first time since 1993 from 14% to 15%.
The Treasury is trying to soften the blow with the announcement of three additional zero-rated items from a proposed list, from the VAT panel convened earlier in 2018. The Treasury has proposed that white-bread flour, cake flour and sanitary pads be zero-rated from April 1 2019.
“The revenue loss associated with zero-rating these items is estimated at R1.2bn,” Mboweni said. “However, zero-rating these products targets low-income households and restores the dignity of our people.”
“Treasury was placed in a difficult position. What they’ve done is highlight the goods that had the biggest impact on poorer households. They were constrained and they did as little as they could get away with,” said Mandy.
While there were calls in public consultations to zero-rate chicken, the Treasury has estimated that that would have resulted in a revenue loss of R9bn.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.