Budget: Experts warn there's little room for hikes, but prepare for jump in fuel levies, sin taxes

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Photo: Getty Images
  • Load shedding is crippling economic activity, which will negatively impact tax revenue collections, economists warn.
  • Consumers are already distressed in the current economy, and there is no room for tax hikes, says a tax expert.
  • Sin taxes on alcohol and tobacco products, as well as fuel levies, are expected to increase, according to an economist.
  • For more financial news, go to the News24 Business front page.

The current economic environment does not bode well for tax hikes, according to a tax expert.

At Deloitte's panel discussion on expectations for the 2023/24 national budget on Wednesday, Nwabisa Ruka, associate director of business tax at the consulting group's Africa operations, weighed in on the plight of consumers facing a higher cost of living and businesses trying to eke out profits as load shedding disrupts operations.

"There isn't room in the current economy for taxes to be raised," Ruka said.

Instead of raising taxes to collect more revenue, the focus should be on resolving the load shedding crisis to support economic activity and growth.

"From a tax perspective, economic activity has a direct impact on tax revenue collected by government. It is important that we focus on growing the economy so revenue authorities can collect more taxes," said Ruka. 

If the government has to introduce hikes, it should focus on indirect taxes like the fuel levy or sin taxes for alcohol and tobacco products.

Load shedding is having a crippling effect on economic activity. The South African Reserve Bank last week downwardly revised the growth outlook to a mere 0.3%. The IMF is more optimistic about South Africa's growth prospects, projecting 1.2%, up by 0.1 percentage points from its previous forecast.

Johann Els, chief economist of Old Mutual Investment Group, is even more optimistic, with a forecast of 2%. He anticipates that when a state of disaster is declared for the electricity crisis, then load shedding stages should be reduced and have a less severe impact on the economy.

READ | IMF slightly boosts SA growth forecast for 2023 despite load shedding

The Reserve Bank expects 250 days of load shedding during 2023, up from a previous projection of 100 days. It estimates the costs of daily load shedding (for stages one and two) to range up to R1.2 million and up to R204-R899 million for stages three to six.

Investec chief economist Annabel Bishop warned that load shedding would "exert a depressing influence" on economic activity that would impact tax revenue.

Momentum Investments economist Sanisha Packirisamy noted that load shedding impacts could be offset by businesses with alternative sources of power like generators or solar PV systems. But the "net impact" of load shedding on the economy will still be negative.

"The recent ramp-up in the intensity of load shedding, together with milder support from commodity prices will likely slow revenue collection," said Packirisamy.

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