The government's goal to raise personal tax collection appears to be aggressive given the depressed economic climate.
The tax burden is going to get heavier, with the government wanting to rake in an additional R39.4‑billion from individual taxpayers next year.
Although Finance Minister Pravin Gordhan would not be drawn to comment this week on whether the government was looking at increasing taxes in February 2012, collections from individuals during the 2012-2013 fiscal year are estimated to rise to R292-billion, according to the medium-term budget policy statement. This represents a 15.6% spike, substantially higher than the 11% increase for the current tax year and 10% for the previous tax year.
The projected increased collection comes despite a R13-billion shortfall in revenue collections that has South African Revenue Services (Sars) commissioner Oupa Magashula under pressure. It will also be a hard sell to convince taxpayers to cough up more when the government is not seen to be spending existing revenues efficiently. The last time personal and individual tax revenue increased by 15% year on year was in 2007-2008, when the economy was growing by more than 5%.
According to the 2010 Tax Statistics report on this period, “this strong performance was the result of robust economic growth, high commodity prices and improvements in the effectiveness and efficiency of tax administration”. But the scenario South Africa currently faces is very different, coupled with the gloomy global economic picture that is hanging over the country.
The treasury told the Mail & Guardian that the 15.6% increase in revenue was tax neutral and did not include any provision for additional taxes. It was based on the assumption that there would be reasonable growth in the wage bill and that people would move up the income bracket.
But, given the weak economic conditions, the treasury’s estimates for next year appear to be very aggressive. To meet this target, the country will have to create more jobs, have salary increases substantially higher than inflation or increase the tax net.
Sars has increased the tax base over the past few years substantially—from 4.1‑million registered taxpayers in 2004-2005 to 5.9‑million by 2010—but it will be a challenge to grow these numbers significantly. Sars indicated earlier this year that it was focusing on 200 of the most non-compliant high-net-worth individuals earning more than R7‑million a year.
However, the taxman was unsure about whether it would get more money into the tax net as a result.
Job creation will have to focus on people earning more than R60 000 a year and who pay income tax (so public-works jobs will not result in higher tax collections) and the private sector will have to start hiring again. Although real wages increased significantly last year, this could be an argument by employers not to award big pay hikes next year.
Already Gordhan indicated in his mini-budget address on Tuesday that public servants’ wage increases would be capped at 5%. This leaves fiscal drag as the one area where the treasury can increase tax revenue. Theoretically, tax brackets should be adjusted by the rate of inflation so that a person who receives a salary increase equal to inflation will not end up paying higher tax.
Last year, the treasury gave tax relief of R8.1‑billion but the bulk of this went to lower-income earners. Those earning more than R300 000 a year were not fully compensated for the effects of inflation and it is likely that this will be the case again next year. By using fiscal drag, the treasury will be able to increase the tax burden of individuals without actually increasing tax rates.
Individual taxpayers will remain the largest source of tax revenue for the government at 36% of tax revenue. VAT revenue is estimated to increase to R212.56‑billion, a 6% increase on the previous budget.
But, with the current shortfall in collections, it represents a 13% increase in actual revenue collection. Revenue from company tax is expected to increase by 11%. Although Gordhan said there might have to be “reasonably worked-out tax increases”, it was “too far away” to offer any clear idea of which taxes would be affected.