Supplementary Budget 2020

Direct or indirect: No escaping the taxman

Cape Town – The Democratic Alliance expects Finance Minister Pravin Gordhan to combine direct and indirect tax increases in the form of a higher personal income tax and fuel levy to fill the R28bn fiscal hole.

At a media briefing in Parliament, DA spokespersons on finance David Maynier and Alf Lees presented their party’s expectations for the 2017 Budget which is to be delivered on Wednesday.

“The minister is drowning in red ink and we believe he may raise personal income tax, which raised R428.5bn, or 37% of tax revenue, in 2016/17,” the DA said.

The party believes Gordhan could either raise personal income tax by about 1%, or create a new upper tax bracket and a higher marginal tax rate of about 43% for individuals who earn a taxable income of R1.5m per year.

A 1% personal income tax increase could garner between R7bn and R13bn, while the creation of an upper tax bracket could raise about R5bn in 2017/18.

In addition, Gordhan could increase the fuel levy (currently at R2.85 per litre) by 50 cents/litre, which could raise about R11.3bn in 2017/18.

The party, however, is of the view that the finance minister won't increase value-added tax (VAT) or corporate income tax.

Sin and wealth taxes may go up

Gordhan could also hike so-called wealth taxes, such as dividends tax, capital gains tax and transfer duties.

Above-inflation increases on alcohol and tobacco products could also be on the cards, as well as the implementation of a sugary tax mooted in last year’s budget.

The DA also believes Gordhan may call upon the Special Voluntary Disclosure Programme to allow South Africans with unauthorised offshore assets or income to come forward and declare the state of their affairs.

“What this means is that whether you are rich, and taxed indirectly, or whether you are poor, and taxed indirectly, the minister is going to reach into your pocket and help himself to at least R28bn to plug the fiscal hole in 2017/18,” the DA said.

Gordhan could streamline the public service

Maynier and Lees pointed out there are alternatives to tax increases Gordhan could resort to, one of which could be the selling of non-strategic assets.

“Former finance Minister Nhlanhla Nene began a process of selling for example government’s stake in Vodacom, which raised R25.4bn in revenue in 2015/16,” the DA said.

Selling assets by privatising or semi-privatising certain state-owned entities, which had a net asset-value of R1.1trn in 2015/16, or selling or leasing underutilised land parcels which are not ideal for housing development could also raise extra income.

“Although the minister has cut spending and lowered the expenditure ceiling by R10.3bn (from R1.24trn to R1.22trn) much more can be done, such as rationalising the national executive and legislative organs, pruning external affairs and foreign aid, and streamlining public service and provincial legislatures to save costs."

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