Brace yourself for a 2011 tax onslaught
A month from now South Africa’s finance minister, Pravin Gordhan, will approach the podium to present the national budget. And he’s going to have to do his homework to sell the 2011/12 message to the country’s struggling taxpayers. That’s because the 5.7
Gordhan’s dilemma is he needs billions of rand to bankroll government’s promises to the masses… And – with 2011 municipal elections just moments away – there’s no better time than the present to announce how the ruling party’s long-awaited National Health Insurance (NHI) project will be funded. Ernst & Young reckons NHI will be the proverbial “Elephant in the room” when the budget is announced. Here at FAnews we reckon “bull in a china shop” works better… If the system gets the go ahead this year it will cause far more damage than good! How will it be financed?
Take from the rich and flush it away
Unfortunately for hard-pressed taxpayers the easiest way for government to fund the grand NHI plan will be to raise another payroll tax, contributed equally by the employee and employer. But Ernst & Young general tax director Rob Stretch reckons South Africans are already feeling the heat from additional taxes – specifically import taxes. In an I-Net Bridge article posted on Fin24 earlier this week, he bemoaned the fact local buyers already pay 30% more than their UK counterparts when purchasing a car. What Stretch forgets to mention is the raft of indirect tax (and service) hikes local consumers are faced with on a daily basis.
Gauteng road users will soon be paying 50c (or more) per kilometre to use the provinces motorways, over and above the money already levied on national routes linking Johannesburg to Cape Town and Durban. The moneys allocated by government for road maintenance seem to have disappeared into a bottomless pit – with unfortunate citizens being taxed to maintain roads – and then re-taxed to use them. To add to the insult local municipalities are so behind on basic road maintenance that private companies are being forced to step in. These companies pay their taxes – but must now find additional funds to pay for “pointsmen” at busy intersections – or to fill potholes on major roads in some of the countries richest municipalities. Ironically the 2011 hike in our fuel levy – which is supposed to be used in part for road maintenance – will largely go towards a fuel pipeline between Durban and Johannesburg!
From a service perspective we’re likely to be hit with inflation-plus increases in our municipal rates and taxes as the number of freeloaders “drown” the number of ratepayers in most of our major cities. And that’s before we factor in what I call “very indirect taxes” – the impact on law abiding citizens’ pockets due to incoherent government policy. The Johannesburg rates billing debacle is a case in point. Irate residents are being hit with massive bills because the new billing system has some glitches… I cannot comprehend how an information technology system, built and designed in the 21st Century and costing a staggering R580 million, cannot deliver a seamless and flawless service to ratepayers. We should be baying for the mayor’s head and leaving no stone unturned to find out what went wrong wit the tender for and awarding of the upgrade project.
What else will Caesar demand?
Government won’t want to “take from the poor” in the months running up to municipal elections, so you can expect VAT to remain unchanged at 14% this year. (As an aside, the VAT rate in the United Kingdom was recently increased to 20%). So – chances of an additional NHI tax aside – we can expect the standard annual increases to “sin” taxes and fuel levies. I expect we’ll also see less being given back to middle and high-income earners, something the minister can easily accomplish by fiddling with tax brackets.
Local taxpayers are going to find themselves out of pocket next year – giving more of their hard earned cash to government – who will then hopefully dish this “loot” to the poor. South Africa’s problem is that the transmission of funds from rich to poor is severely hampered by a burgeoning public service and rampant corruption.
Editor’s thoughts: An international tax expert looking at South Africa’s tax regime might comment it’s nowhere near the most draconian in the world. But he forgets the level of service the ordinary taxpayer receives for these contributions. A middle-income family in South Africa pays over and above his tax contributions for services the government should provide. Private healthcare, private security and private schooling add thousands to monthly budgets… Are we getting bang for our tax buck? Add your comment below, or send it to [email protected]
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