Sugar tax and asset disclosures could add R1bn to budget revenue

There were several potential tax revenue windfalls that could increase the 2017-18 budget revenue estimate by more than R1bn, Treasury officials said in Parliament on Thursday. This would mitigate to a small extent any undercollection by the South African Revenue Service.

The proposed tax on sugary beverages was not factored into the revenue estimate of R1.4-trillion for the year; neither were the proceeds of the Special Voluntary Disclosure Programme, which allows taxpayers with undeclared assets here and abroad to declare them without being penalised.

Also not included in the tax revenue estimate are the proceeds of a new measure that took effect at the beginning of March to tax as a donation the interest-free loans made to trusts.

Details of these potential windfalls were provided to members of Parliament’s two finance committees by Treasury chief director of legal tax design Yanga Mputa and director of personal income taxes and savings Chris Axelson when giving the Treasury’s responses to issues raised during public hearings on the budget.

PwC tax policy leader Kyle Mandy said in his presentation during the hearings that anecdotal evidence suggested the tax on interest-free loans to trusts could raise at least R1bn, while the sugar tax could raise about R2bn.

By late February R600m in revenue had been raised of disclosures of R3.8bn in foreign assets under the Special Voluntary Disclosure Programme, which terminates at the end of August. Several billions of rand could accrue to the fiscus from these disclosures by taxpayers.

Tax experts also pointed out that according to their calculations, the imposition of a 45% tax rate on the 103,353 individuals earning more than R1.5m should yield more than R6bn and not the R4.4bn estimated by Treasury.

Axelson said that while this was correct, the Treasury had introduced a "behavioural assumption" into its estimate, which took into account that high-income earners would make use of various deductions or might not work as hard. "There are a variety of reasons why you might not get as much money with a higher rate. This reduces the amount of revenue that we expect to get from that top rate," Axelson explained.

He also explained that the Treasury did not have any information at its disposal to make an estimate of what the donations tax on interest-free loans to trusts would generate and was not prepared to hazard a guess about this. Tax professionals would have a much better grasp of this from interactions with their clients.

There was the same lack of knowledge about how much in undeclared assets would be disclosed under the Special Voluntary Disclosure Programme. "This could potentially be another windfall in the coming year," Axelson noted.

Mputa said the Treasury had not yet estimated the revenue that could accrue from the redesigned sugary beverage tax as it was not sure of the implementation date. The tax will only come into effect later in 2017, possibly in October, with the promulgation of the various laws arising out of the budget proposals.

Addressing the questions over the limited relief provided to taxpayers for bracket creep Axelson pointed out that raising the tax threshold by the level of inflation from R75,000 to R79,500 would have cost the Treasury about R5bn. Providing tax relief of 1% across all brackets would, on the other hand, generate R12bn.

Axelson told MPs that both the Treasury and the Davis Tax Committee were assessing corporate income tax to determine the effective rates that were being paid in the various sectors after the use of incentives. "Our view is that the 28% headline rate has a big impact on investment and we would look to remove some of the incentives in the corporate tax system. We would like a system with a more level playing field and a broader base and need to study on what we need to achieve this."

He referred to figures presented by the Manufacturing Circle that showed the effective corporate tax rates paid by various sectors was hugely variable, with mining at minus 1.2% and manufacturing at 19.6%.