Tax hikes possible in South Africa
The South African government desperately needs more revenue. Potential tax hikes are on the cards especially for the wealthy.
South African Finance Minister Enoch Godongwana announced cost-cutting measures for the 2024 Budget during the 2023 MTBPS, to be implemented next week.
Forecasts expect a widening budget deficit for the country, exceeding the 6% estimate provided in the November MTBPS.
The minister said that the government spends more money than it earns in taxes since the 2008 crisis. Now, the government has to borrow money to pay for important things and to repay the debt. This puts the country in a never-ending cycle of debt.
These initiatives and the under-resourced sectors of education, healthcare and social services need considerable funding.
To fund important projects, taxes must be increased if the government doesn't reduce spending in other areas and manage money responsibly.
New taxes
The upcoming budget is expected to keep several taxes stable, such as Value Added Tax (VAT).
VAT affects the less wealthy more. Any increase would need other measures to help the poor. One possible measure is making basic food items exempt from tax.
The government may, however, consider revising taxes targeted at wealthier individuals.
These could include:
- Donations tax;
- Capital gains tax (CGT);
- Transfer duties; and
- Dividends withholding tax.
Raising the capital gains tax for individuals from 40% to 50% could help the government meet its financial goals.
Government could apply similar adjustments to estate duty and donations tax rates.
Consumers may experience more expensive fuel as the government considers raising the general fuel levy. The government is considering raising the general fuel levy, which may lead to more expensive fuel for consumers. Despite high fuel prices, this levy has remained unchanged for two years. Increasing it would be a straightforward method for the government to generate additional revenue.
Expect increased excise duties on tobacco, nicotine products, and alcoholic beverages.
Also, the upcoming changes to taxes may cause a smaller increase in the budget than usual for individual taxpayers. This is because adjustments to tax brackets and rebates may not keep up with inflation.
In the last 10 years, the government made changes to increase revenue without raising taxes directly. This conservative adjustment approach could also impact rebates and potentially medical aid tax credits afforded to individuals.
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