Ongoing strike action, now spread way beyond the mining industry, will impact corporate profitability in South Africa. Beyond unemployment, this will reduce corporate tax collections, adding to South Africa’s budget deficit at a time of slowed global growth and recession in key export markets.
Yet, despite this, South Africa’s expenditure bill continues to expand. The country’s state-owned enterprises that are not able to financially sustain themselves, especially SAA, continue to look to taxpayers to fund their bad habits. Struggling infrastructure development projects like the Gauteng toll road fiasco only add to the drain on the national fiscus. In addition to these unplanned shocks, South Africa’s ever-expanding, though politically untouchable, public wage bill smoulders away, stoking the pressure on the national fiscus.
Although the planned first phase of National Health Insurance (NHI) in 2013 is meant to be funded from the existing Health Budget, it becomes clear that "the current Medium Term Budget Policy Statement is going to have to address the issue of additional revenue for the 2013 tax year and beyond", says AJ Jansen van Nieuwenhuizen, director and head of tax at Grant Thornton in Johannesburg.
As such, the trillion rand question surrounding the Medium Term Budget Policy Statement is who will pay?
Will corporates be asked to contribute more?
This is unlikely given government’s drive to woo foreign investors in the wake of its handling of the mining crisis and two successive ratings downgrades.
Moreover, South African corporate tax rates are already higher than the OECD average of 25 percent and BRIC average of about 23 percent.
Add to this a cumbersome legislative environment, with very little infrastructural or ease-of-business dividend in return for South Africa’s high corporate taxes, and the country starts looking outright business unfriendly.
As such, AJ Jansen van Nieuwenhuizen sees "no room for any corporate tax increases".
Can personal tax be increased?
This is also unlikely as South Africans, already amongst the highest paying taxpayers in the world, are close to being overburdened.
It should be kept in mind that individuals are the major contributors to the tax pool – in the 2011/2012 year personal income tax amounted to R250-billion, which is more than a third of all taxes collected.
These individual taxpayers also, to a large extent, indirectly bear the cost of the other types of taxes like VAT, dividend withholding taxes, corporate taxes, customs and excise taxes.
Article continues on pages two and three: could government improve tax collection or is an increase in VAT the only way?