Finance minister Tito Mboweni told selected clients of two of the country’s biggest banks that national treasury has no plans to boost income tax, corporate tax or VAT even as the coronavirus decimates the nation’s finances.
Treasury is discussing the possibility of an inheritance tax and a so-called solidarity tax in a bid to raise additional finances, said two people who listened to the calls with hundreds of clients of Standard Bank and Absa. They asked not to be identified because the calls were private.
Mboweni’s room to raise levies for individuals and companies is limited, with the ratio of tax revenue to GDP at 26% compared to a global average of 15%, according to World Bank data.
Increasing VAT, which the government has done only twice since 1991, is unpopular within the ANC because it as seen as affecting the country’s poorest people hardest. Taxes on the wealthy are favoured politically and a solidarity tax, associated with the virus outbreak, would be limited in duration.
In a special adjustment budget last week, the government cut its revenue projection for the current fiscal year to R1.12-trillion from the R1.43-trillion it estimated in February as the virus and the associated lockdown reduced business activity. Mboweni said an additional R40-billion in tax will be raised over the next four years, without providing more details.
National treasury, Absa and Standard Bank declined to comment.
In South Africa, the top income tax rate is 45%, corporate tax is 28% and VAT is 15%.
In February, when the annual budget was released, treasury said it decided not to raise taxes due to the weakness of the economy and was considering lowering the levy on companies to boost the country’s competitiveness as an investment destination among emerging markets.
Since then, South Africa has lost the last investment-grade rating on its debt and the country on 27 March entered a lockdown to curb the spread of the virus. While the government is gradually easing those restrictions, treasury forecasts GDP will contract 7.2% this year. — Reported by Antony Sguazzin and Prinesha Naidoo, (c) 2020 Bloomberg LP