With Finance Minister Pravin Gordhan unlikely to announce increases in value added tax (VAT) and corporate income tax when he presents his 2017-18 budget on Wednesday, the only option is for personal income tax rates to go up, Davis Tax Committee head Judge Dennis Davis said Monday.
In an address to the Cape Town Press Club, Dave said Gordhan would have to fill a R28bn revenue shortfall in very difficult circumstances as growth had not been sufficiently high to generate what was required.
Taxes would have to go up, Davis said, but the political climate would make it exceedingly difficult for VAT to be increased. "It probably won’t happen", even though Davis conceded that a two percentage point increase in VAT would be sufficient to meet most of the R28bn revenue shortfall.
He also said it would not be possible to "fiddle around with corporate taxes".
Davis noted that other African countries were reducing their corporate tax rates and if SA was to increase its rate, it would become uncompetitive at a time when the country desperately needed foreign investment.
US President Donald Trump and possibly the UK government were also contemplating lower tax rates, which could result in funds being channelled to those countries.
Furthermore, Davis pointed out that a serious investigation was under way as to what effective tax rate was being paid by South African corporates. Increasing the corporate tax rate before the investigation was completed would be unwise.
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