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Tito Mboweni's Medium Term Budget Policy Statement (MTBPS) 28 October 2020


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I will add a link here to the live feed when it happens on the day.

 

As Finance Minister Tito Mboweni prepares to deliver his much-anticipated Medium Term Budget Policy Statement (MTBPS) on 28 October 2020, dinner table conversations again turn to politics, fiscal and tax policy and the like. Of course, everyone knows what should be done and by when, but few have the energy and the inclination to do it. The need for decisive, urgent action has never been more critical.

 

In between demonstrating his 'master chef' skills, Minister Mboweni has given South Africans a taste of the lay of the land - best described as a 'rocky road'. Unfortunately for South Africans, there is nothing sweet to look forward to in the upcoming MTBPS.

 

Meanwhile, back at the South African Revenue Service, Commissioner for SARS Edward Kieswetter has taken the opportunity to note the Catch-22 in which SARS finds itself, requiring just short of R1 billion, instantly, to operate efficiently again.

 

One does not need to be a rocket scientist to figure out this equation:

  • Skilled people + enforcement = effective tax collection & more revenue towards state coffers
  • However: 1 000 critical forensic/audit/specialist vacancies + inadequate data + unsuitable technology = dire straits

 

Latest GDP projections for 2020 by the Organisation for Economic Co-operation and Development (OECD) suggest that South Africa will top the list at -11.5% (well below the expected global average of -4.5%).

 

A MTBPS does not usually delve into taxes. This is usually the preserve of the main Budget Speech in February. This time around, however, the MTBPS may very well be all about taxes.

 

Commentators like Michael Jordaan (Founder/Investor of businesses such as Bank Zero and Rain) noted recently that out of 196 countries on the world stage, only 15 have higher marginal personal tax rates than South Africa (at 45%). It's worthwhile to note that Personal Income Taxes (PIT) continue to be the largest contributor to overall tax collections, comprising 38.3% in 2018/19 (38.1% in 2017/18).

 

Our corporate tax rate of 28% benchmarked against the world average of 24%, is considered too high to effectively compete for foreign direct investment. SARS revenue collection stats prove that corporate income tax collections are on a steady decline (16.6% in 2018/19 from 18.1 in 2017/18). Defining the real 'tax gap' – what SARS collects in taxes versus what it ought to be collecting – remains elusive.

 

There is great concern around the backdrop against which Minister Mboweni will deliver his statement, primarily:

  • the unprecedented drop expected in 2020/21 tax revenue estimates compared to the prior Budget, primarily because of the impact of Covid-19;
  • the sustained (temporary) shrinkage in the tax base as businesses continue to close and jobs are lost through large scale retrenchments, as well as the possibility of an uptick in the emigration of professionals and so-called 'high net worth' families abroad.

 

There is also significant pressure on SARS to do more, at speed, to improve tax collection through enforcement and effective administration, which is seen as core to achieving fiscal stabilisation.

 

In addition, taxpayers are expecting SARS to actively pursue defaulters to collect the cash (including South Africans who are suspected of tax fraud in the likes of the Mauritius and Panama leaks). The question is: can Minister Mboweni afford not to capitalise SARS to whatever extent is necessary, to enable SARS to perform its mandate?

 

Notwithstanding passive resistance, taxpayers are bracing for new taxes on the horizon:

  • A three-year temporary tax (aka the 'solidarity tax') on high net worth individuals (a 'surcharge' on taxpayers falling into the marginal tax bracket) and companies with turnover above a certain threshold;
  • A more permanent 'wealth tax' or 'inheritance tax' (subject to recommendations from the Davis Tax Committee) - in the context of a current estate duty/donations tax/land tax regime - coming into effect as early as 2021;
  • A possible digital tax based on the blueprint released by the OECD recently.

 

Perhaps a more palatable approach to lessen the pain South Africans are bracing for, is to simultaneously give due consideration to the reduction of tax rates, where it makes sense to, and to incentivise South Africa Inc. to employ, employ, employ and ultimately  grow. Few will disagree that a complete overhaul of government incentives is long overdue.

 

As an armchair budget observer, I have plans on 28 October 2020. I cannot say I'm looking forward to it. However, the show must go on!

 

Nazrien Kader is a tax specialist with over 25 years of experience within the corporate sector. She is currently Head of Tax at Old Mutual. Views expressed are her own.

 

Source: Fin24

Edited by Spreadsheet Ranger

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Government’s medium‐term policy priorities are economic recovery and fiscal consolidation.

 

The social compact agreed to between government, business, labour and civil society prioritises short‐term measures to support the economy, alongside crucial structural economic reforms.

 

The economy is expected to contract by 7.8 per cent in 2020, recovering to real GDP growth of 3.3 per cent in 2021. Economic growth is expected to average 2.1 per cent over the three‐year forecast period.

 

Fiscal measures – primarily reductions to the wage bill – will narrow the budget deficit and stabilise debt over the next five years to return the public finances to a sustainable position.

 

The consolidated deficit narrows from 15.7 per cent of GDP in 2020/21 to 7.3 per cent by 2023/24. Gross national debt is projected to stabilise at 95.3 per cent of GDP by 2025/26.

 

http://www.treasury.gov.za/documents/mtbps/2020/2020 MTBPS presentation.pdf

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