PwC's recommendations for the upcoming SA budget

14 February 2020 2 min. read
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In anticipation of the upcoming budget speech at the end of this month, PwC South Africa has offered its predictions and recommendations for the much anticipated statement. Above all else, the firm has expressed a “wish” that the economic reform plan released in the Medium Term Budget Policy Statement (MTBPS) 2019 is adopted.

PwC’s recommendations revolve around the issue of tax, and deal with provisions from the MTBPS that dealt with revenue, the South African Revenue Service (SARS), corporate income tax, dividends tax, personal income tax and VAT among a range of other fiscal policies.

The list of recommendations, compiled by Tax Policy Leader Kyle Mandy and Chief Economist Lullu Krugel, stress that the changes recommended by the MTBPS 2019 are crucial to reduce the steadily growing gap between population growth and GDP in South Africa.

PwC - 2020 Budget predictions for South Africa

The first requirement to remedy this situation is to rejuvenate revenue collection numbers. Where the government has been relying on hikes in the tax rate in recent years to achieve this end, PwC recommends that the focus shift to the internal functioning of SARS as a collection body to make collection more efficient.

SARS has taken some measures in recent times to reduce defaults, announcing in 2018 that it would publicly call out defaulters to deter tax evasion. However, on the whole, SARS has relied on increases in both the personal income tax and corporate income tax domains to meet its revenue woes. For PwC, this practice is counterproductive.

“Significant increases in personal income tax have taken place in the past few years (through increases in the top marginal rate and through fiscal drag). This has, however, failed to translate into increased revenues. This tends to indicate that the previous increases in personal income taxes are themselves having a negative effect on economic growth and have largely become self-defeating,”wrote the firm.

“An increase in the corporate income tax (CIT) rate will, in all probability, have an even more pronounced negative effect on economic growth. Although the only other option – to raise the VAT rate – would be difficult from a political perspective on the basis of the perceived regressive nature of VAT and its effect on the poor, we believe that this would have the least negative impact on SA’s flailing economy, and should therefore be the preferred option should government wish to increase revenues by raising taxes,” it added.