In this edition of Business Law Focus, host Evan Pickworth interviews Charles de Wet, a tax executive at ENS. De Wet has more than three decades of experience advising local and international clients across many industries.
Notably, he was part of the team at the South African Revenue Service (Sars) that implemented VAT in 1991. A key question in the interview is whether VAT could again become a barrier after the significant delays in finalising the budget last year. De Wet also explores why a wealth tax should be off the table, how smaller businesses could face less red tape, and why excise duties should, in an ideal world, be tempered.
The context
Finance minister Enoch Godongwana will deliver the national budget speech on February 25. The budget allocation aims to balance economic growth with support for vulnerable groups amid limited resources.
However, last year the first budget under the government of national unity was a disaster, being delayed amid instability and political infighting. By April, SA and its shell-shocked business sector faced three distinct budget phases/documents to finalise the 2025/26 financial year planning.
The interview explored why this year it is very unlikely there will be more than one budget, and why a VAT rate increase is also unlikely.
A factor to watch this year is the impact of the rand’s significant strengthening. It will affect payments and international debt, which should have come down significantly.
“Our repayments on interest and capital amounts have reduced in rand terms,” explained De Wet.
That will give the minister greater flexibility to reallocate funds or avoid tax increases. A reasonable increase in tax collections also gives room to manoeuvre. These are up close to 10% on the previous year. Collections in 2023/4 were less than 2%.
In SA, the 27% corporate tax rate is higher than that of international trading partners, but there is likely limited scope to reduce it as this would reduce corporate contributions and place a heavier burden on individuals. De Wet said the best announcement on inclusive growth would be to reduce corporate tax, but this is “very unlikely”. Rather, expect significant focus on enhancing technology and driving efficiency.
While a VAT increase is not expected, Sars is reviewing VAT thresholds (an increase above R1m would see fewer small businesses required to register), which would reduce the red tape burden.
National Treasury often advocates growth-friendly taxation, yet compliance costs remain high for small and medium-sized enterprises. A change in the VAT threshold could help as a major problem remains the high regulatory burden, and significant penalties if they fail to match up.
There is increasing public pressure for wealth-based taxes or higher contributions from high-income earners. However, realistically, SA does have wealth taxes, including a donations tax, estate duty and trusts taxed at high rates. The term “wealth tax” is therefore a bit of a misnomer and would likely have a negative impact on broader tax collections, said De Wet, as people would move money offshore or through immigration. Top tax rates are already at a maximum level, so Treasury does not have to go down the “wealth tax” route.
On an excise tax level, De Wet noted excise duties, notably on tobacco and liquor, have traditionally increased at much higher rates than inflation. It is hoped there will be greater restraint this year to avoid any increase in illicit activities. A “good development” would be for Sars to increase these duties at less than inflation. At a minimum, the rates should be tempered.
SA is fighting a battle against illicit industries such as tobacco and gold as sophisticated criminals smuggle and plunder with abandon. Higher rates place an unfair burden on legitimate industries, with BAT recently saying it intends to shut its local cigarette manufacturing plant due to the unsustainable impact of the massive illicit tobacco trade (estimated at 75% of the market). This, it said, is because it makes legal production unviable. The closure could affect hundreds of direct jobs and thousands more indirectly.
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