What are experts predicting for this year’s Budget Speech?
There’s a lot hanging in the balance for the country, and the ruling party’s 2024 election prospects, when Finance Minister Enoch Godongwana presents his second national budget to parliament on 22 February. This is the most anticipated finance event of the year and, from tax implications to fuel levies, it is likely to affect your accounting business, and your clients’ businesses.
Attend CIBA’s budget speech update to make sure you understand the implications
To ensure that you are on top of what the Budget Speech will practically mean for you and your clients, sign up for CIBA’s budget speech update, an in-person event on 28 February in Pretoria. Here, leading tax experts and economists will help you understand how the changes in tax legislation and tax amendments introduced in the budget speech will affect your business and personal finances. Click here to book your seat.
Economy must prioritise growth
So, what are companies predicting? Tuffias Sandberg has outlined their predictions. The bottom line, they say, is that the SA economy must grow to finance our domestic needs and high interest payments on our foreign lending. “South Africa simply cannot afford to continue financing domestic expenditure with foreign lending as its level of lending is getting alarmingly close to 100% of GDP.”
Growth predicted to decrease in 2023
PWC’s macro data 2023 forecast, however, shows that economic growth slowed in 2022 to 2.0% and is estimated to continue the downward trend this year to 1.7% or lower, the Reserve Bank is expecting 0.7% – due mainly to rolling blackouts.
Welcomed energy tax breaks announced at SONA but the crisis continues
As predicted, the energy crisis took centre stage at this week’s State of the Nation Address. In a welcome move, the president announced tax breaks for businesses and households installing solar. Details of exactly how much of an incentive will be outlined in the budget speech and will hopefully be significant. This is good news as businesses are forced to move away from Eskom to keep their doors open. Ramaphosa also said National Treasury would find other measures to boost solar for businesses and he announced adjustments to the post-COVID ‘bounceback’ loan scheme to help businesses invest in solar power.
Despite these welcome incentives, the new Energy Minister (who will also need to be paid) and the National State of Disaster around Eskom, also announced at SONA, the energy crisis is not going anywhere in the foreseeable future.
Taxpayers footing the bill
Godongwana has set SARS a revenue target of R1.68 trillion to collect but in this atmosphere of crippling load-shedding, high levels of unemployment and emigration, where will the tax come from? Thanks to our energy woes, foreigners are not seeing South Africa as a shining light for investment, which leaves the ever-shrinking SA tax base.
SARS must collect ‘compliance dividend’
At a PSG Think Big webinar, SARS Commissioner, Edward Kieswetter, said the minister has little room to increase tax rates. Rather, he said, the trend is to follow the example of the Organisation for Economic Cooperation and Development (OECD) in lowering tax rates. He says that should SARS improve their administrative competencies especially regarding the ‘compliance dividend’ which is tax that has escaped SARS’s net, it would reduce the need to increase tax rates.
Corporate Tax
According to the Mineral Council, high global commodity prices grew the mining industry’s contribution to GDP by 4% last year. One of the few industries to create jobs and the higher-than-expected corporate tax from this sector helped government meet debts. Unfortunately, this is not expected to last into 2023.
Tuffias Sandberg agrees with Kieswetter prediction that government has little room to increase in corporate tax which, even after the 1% reduction to 27% in last year’s budget, is still high compared to the rest of the world. OECD countries have a statutory rate of 23.6%. However, they do predict a reduction or total scrapping of certain special allowances and benefits that corporates are currently entitled to under certain circumstances.
Value-Added Tax and Sin Tax
Tuffias Sandberg also predicts that although our Value-Added Tax rate is low compared to the rest of the world, it will not be significantly increased so close to an election year. While Sin Tax is inevitably increased, government must take into consideration the increasing ‘gatvol’ factor as South Africans feel less comfortable about high level of tax combined with a lack of service delivery. And, with the unprecedented increase in fuel prices over the last two years, a fuel levy is bound to be seen as government being totally out of touch its citizens.
Personal Tac and Wealth Tax
Predictably trade unions are calling for a Wealth Tax to fund an increased basic income grant. In an interview on ENCA, Zwelinzima Vavi from SA Federation of Trade Unions (SAFTU), says R240 billion could be raised by taxing the richest 1% and regulating profit shifting.
Tuffias Sandberg believes a wealth tax may be the only way to raise money in the short term but may have disastrous consequences for the economy in the long run. As people in lower tax brackets pay very little tax and this could be increased but increasing the top income bracket could lead to more taxpayers leaving the country. There is a possibility of an increase in capital gains tax and removing medical aid credits.
Experts can help you understand the implications to your business
We’ll have to wait and see. In the meantime, don’t take any chances with your businesses. Attend CIBA’s Budget Speech Update 2023 on 28 February to make sure you’re properly informed on the implications.
