SOUTH Africa did not plan to increase corporate, value-added tax (VAT) or income tax, said Bloomberg News which reported on a meeting between finance minister, Tito Mboweni and two of the country’s largest banks.
The National Treasury is discussing the possibility of an inheritance tax and a so-called solidarity tax in a bid to raise additional finances, said the newswire citing two people who listened to the calls with clients of Standard Bank Group and Absa Group.
Mboweni’s room to raise levies for individuals and companies is limited, with the ratio of tax revenue to gross domestic product at 26% compared to a global average of 15%, said Bloomberg citing World Bank data.
Increasing value-added tax is unpopular within the ruling African National Congress because it is seen as affecting the country’s poorest people hardest, it said.
Taxes on the wealthy are favoured politically and a solidarity tax, associated with the COVID-19 outbreak, would be limited in duration.
Presenting a supplementary budget last week, Mboweni warned that “public finances are dangerously overstretched”, according to a report by BusinessLive.
The National Treasury’s early projection was that gross national debt will be close to R4-trillion, or 81.8% of GDP, by the end of this fiscal year compared to an estimate of R3.56Tr or 65.6% of GDP projected in February.
Debt-service costs will increase from R204.8bn in 2019/2020 to R236.4bn in 2020/2021, and are expected to reach R301.1bn, or 5.4% of GDP, in 2022/2023. These costs are more than the country spends on healthcare, according to the Minerals Council.
Mboweni intended to narrow the country’s account deficit and stabilise debt by 2023/2024 at 87.4% of GDP. The cabinet adopted a target of a primary surplus by 2023/2024.
“South Africa is at a fork in the road and faces a slip to a sovereign debt crisis unless tough choices are made,” said Roger Baxter, CEO of the Minerals Council in a statement last week following the supplementary budget.
“To take the fork to the high road South Africa requires significant structural economic and institutional reforms to steady the ship, and create the space for much faster growth.”