Road Accident Fund levy may be Mboweni’s major tax hike

Finance Minister Tito Mboweni may be getting ready to announce an increase in the Road Accident Fund (RAF) levy in his maiden budget speech later this month.

However, the rate of Value Added Tax (VAT), the level of corporate income tax and personal income tax, other than tax bracket adjustments, are expected to remain the same.

Mboweni will deliver his first budget speech in Parliament on February 20.

Bernard Sacks, a tax partner at Mazars, last week said that the RAF’s increasing liability was a big concern.

“The RAF levy was increased by about R0.30 a litre last year to assist with its growing liability. In spite of this, the RAF’s liability is expected to expand to R355.3 billion in the 2020/21 financial year, which means that its liability has almost doubled. It is expected that Treasury may announce a number of large increases over the next three years to manage this,” he said.

Tertius Troost, Mazars tax manager, said so-called sin taxes on alcohol and tobacco would increase as usual, and there could be a slight increase in sugar tax, or what is known as the health promotion levy.

Delia Ndlovu, the managing director of Africa tax and legal at Deloitte, said: “We believe that, in this year of elections, the minister will be under pressure to come up with a budget speech that has popular appeal, but will at the same time strive to reduce unemployment and to increase inclusive economic growth. The pressure will be exacerbated by ratings agencies, which will be scrutinising the budget speech with a view to getting a sense of what government’s priorities and goals are.”

She added: “We are not expecting any increases in personal income tax, corporate income tax and VAT.”

Mike Teuchert, the head of taxation at Mazars, said that it would be interesting to see how Treasury navigated the tax revenue collection shortfall, which was estimated to be R27.4 billion in October.

Teuchert said that government’s budget deficit was expected to expand to 4.8% of the country’s GDP. This compares poorly with the medium-term budget policy statement issued in October, which forecast the budget deficit would climb to 4% of GDP by next month.

However, Merrill Lynch said that the main budget deficit could be at 4.3% during the financial year ending in March, or slightly better.

Investec economists last week said that Mboweni’s budget speech would be assessed by the markets and ratings agencies for its commitment to fiscal consolidation and for the implementation of remedial action at state-owned enterprises (SOEs).

“The associated contingent liabilities could raise government debt well above the high-risk benchmark of 70% of GDP,” Investec said.

Economists from Merrill Lynch said that their bearish macro outlook was for the state budget deficit to reach 4.5% in the medium term and for the public debt profile to breach 60% in the 2022 financial year.

The bank expects that Mboweni’s speech will focus on five key areas:

. Better-than-expected spending and potentially worse-than-expected revenue outcomes; 

. Expenditure measures to support the president’s economic stimulus and recovery plan; 

. SOE restructuring plans and potential injections to help SOEs; 

. Annual adjustments to personal income tax brackets, levies and excise duties in line with inflation; and 

. Stabilisation of government debt.

Merrill Lynch said that a cash injection from the central government budget to Eskom would ease funding pressures on the power utility.

Eskom is seeking a R100 billion bailout from the government.

“We think such an allocation conditional on a restructuring plan would be Eskom positive. It would also be positive for the fiscal [position] as it would reduce risks stemming from contingent liabilities,” Merrill Lynch said. 

“With a cash injection from government, Eskom’s next three-year funding gap should be covered.”

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