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Minister to tackle growing inequality in emergency budget with higher marginal tax rates; corporate scrutiny

22 June 2020 EY

Finance Minister Tito Mboweni could tackle growing income inequality, exacerbated by COVID-19, in next week’s emergency budget while putting pressure on SARS to collect additional revenue from corporates and high net worth individuals.

EY Tax Partner Professor Osman Mollagee said that the one area that he is watching closely is the extent to which the budget might seek to advance the redistributive effect of the South African tax system given how the pandemic has worsened income and wealth inequality.

“The Minister may for example adjust the progressive personal income tax tables so that the higher income earners pay even more tax while granting greater relief at the lower end”.

Mollagee noted on the topic of redistribution, there has been some debate and speculation around the potential for a wealth tax.

“But we would argue that there has been insufficient research or implementation planning for this to be a serious proposal in the short-to-medium term. That said, it will be interesting to see whether something like a discussion paper might be commissioned by the Minister.” he added.

He added that one way of looking at taxes is that it is simply moving revenue from the private sector to the public sector, but with economic stimulus at the forefront of the Minister’s mind it seems contrarian to extract more cash from an already-battling private sector. “From a structural perspective it is therefore unlikely that the Minister will increase the VAT rate or the corporate income tax rate.“

Mollagee expects that there will be an increase in the pressure placed on SARS to collect even more taxes from corporates and high net worth individuals.

"We expect SARS to pay particular attention to cross border matters such as transfer pricing and corporate actions as they try to collect more revenue. We also expect a higher number of audits.”

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