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VAT, Fuel, And Sin – And How Mboweni Might Find The Money The Country So Desperately Needs

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Just where will the finance minister find the extra money SA so badly needs?

We know you need the money, the Automobile Association said to finance minister Tito Mboweni this week, but don’t grab it from fuel taxes.

This was among the pleas put forward from the AA to the finance minister ahead of the annual budget speech scheduled for Wednesday.

While it acknowledges Mboweni faces the difficult task of easing the country’s financial burden and ensuring there is the money going to the government, the AA said any increase in the fuel levy and value-added tax (VAT) – which many economists predict we’re likely to see – would be detrimental and “catastrophic” for SA.

“The minister will have to walk a trickier fiscal tightrope than many of his predecessors, and he will undoubtedly be seeking relief from different quarters to ease the country’s financial burden,” the AA said. 

“This places him in a tough position where he will have to meet the needs of the country while at the same time ensuring there is enough money coming into government coffers to satisfy demand.”

The association, however, contends that it would be a dangerous and damaging tactic, especially for the poor, if the government turned to fuel levies as a further source of revenue.

“Previous years have seen higher than inflation increases to the fuel levies – the general fuel levy, the Road Accident Fund levy, customs, and excise taxes, and the carbon tax. However, given the fact that many South Africans are buckling under severe financial constraints, such an increase this year will be more than detrimental – it could be catastrophic,” the association said.

According to the AA, the two major taxes – the general fuel and Road Accident Fund levies – comprise around 40% of the price of every liter of fuel sold in SA.

“We have seen in the past that any increases to the fuel levies are met with a swift increase in public transport fares,  including those of taxis. While a slight increase, even one in line with inflation, may not seem drastic, it has an enormous impact on the lives of consumers who rely on every cent to make it to the end of each month. These increases are therefore extremely harmful to the majority of citizens and should be considered an absolute last resort by the finance minister,” said the AA.

It added: “In addition, the AA says any proposed increase to the rate of VAT along with an increase to the fuel levies will be a double blow for consumers and the motor industry as a whole, one many will not be able to cope with.”

Economist Dawie Roodt believes a VAT increase of one percentage point is possible, along with increases in other taxes.

“I think Mboweni will introduce a new tax rate for the super-wealthy. Another might be VAT, but that’s very difficult to do politically. Other taxes that I think he will increase are the fuel levy and sin taxes,” Roodt said.

Six taxes refer, largely, to levies charged on alcohol, cigarettes and similar products.

However, other economists don’t necessarily agree, although they say Mboweni faces a difficult task given the country’s financial position.

“I think his budget speech will be a difficult one,” said Dr. Thabi Leoka. “I think he will cut expenditure. He will make deep cuts that will affect service delivery.”

She said she did not see Mboweni increasing VAT as it would be “too costly” for the economy.

Chris Malikane said Mboweni’s budget speech would be “contractionary” and would focus on bringing down the country’s debt.

“I think he will introduce conditions under which treasury can make money available for SOEs [state-owned enterprises],” said Malikane.

He said Mboweni would announce a more “concrete” plan to introduce strategic equity partners in SOEs.

“His emphasis will be on cutting spending and suspending under-performing projects,” said Malikane.

He, like Leoka, did not expect Mboweni to announce an increase in VAT.

The Banking Association South Africa outlined key considerations Mboweni should be made in Wednesday’s speech – ones that should be implemented with “clear and urgent” deadlines.

These include:

  • A clear and sustainable plan to deal with the operational and financial crisis at Eskom, which is an immediate threat to the fiscus and the economy;
  • Creating an environment to grow existing and new businesses to broaden the corporate tax base and increase employment;
  • A reduction in the public sector wage bill and ensuring future increases are within inflation targets;
  • The creation of a fit for purpose public service will ensure resources are directed to improving people’s lives through the efficient and “caring” delivery of basic services to those who need them;
  • A modest increase in VAT, with a widening of the basket of exclusions to protect the poor, while unwelcome, may be the only way to increase tax revenues; and
  • Stopping wastage of resources by ensuring there is no funding of vanity projects, including non-strategic and unsustainable state enterprises.

The association said South Africa’s corporate tax rate was among the highest in the world and already hard-pressed consumers “cannot absorb an increase in personal income tax rates”.

“The finance minister has the unenviable task of having to chart an economic path that will lead to the implementation of growth-enhancing reforms and a reduction in the government’s unsustainable debt burden at a time of economic stagnation and political and policy uncertainty. We wish him well. South Africa needs him to succeed,” the association said.

Student crowd-funding platform Feenix said while there are a number of “pressing” issues Mboweni will have to address, those should not drown out the ongoing public schooling challenges the country is facing.

The organization said it expected Mboweni to elaborate on initiatives President Cyril Ramaphosa mentioned in his state of the nation address, and those would support the introduction of entrepreneurship in the schooling system.

“South Africa has many challenges in the form of the economy, state-owned enterprises failures, power generation, and political uncertainty.

“While minister Mboweni will no doubt present a budget that will seek to address all of these issues, the ongoing challenge of education cannot be ignored. We believe it is possible to solve these challenges and to advance our country together,” said Leana de Beer, chief executive at Feenix.

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Written by Mathew

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