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Jaco Vermaak

Jaco Vermaak

28 Billion in Extra Tax is Needed

Pravin Gordhan, delivered his Medium Term Budget Policy Statement (MTBPS) in October 2016. The MTBPS revised SA's economic growth downward to 0.5% for 2016 and 1.7% in 2017, which seems very optimistic. The South African economy also finds itself in the midst of protracted global trade, lower commodity prices and a high risk of external volatility. The Minister announced that tax measures and reduced expenditures are estimated to raise an additional R43billion over the next two years. The MTBPS announced that R28 billion additional tax revenue measures will be introduced at the February 2017 budget speech for 2017/18 and R15 billion in 2018/19. Treasury has a number of ways to raise the R28 billion. The main instruments that could be used include corporate income tax, VAT, or personal income tax. Tinkering with wealth and capital taxes may for now be off the table.

The Corporate Tax Rate in South Africa has been 28 percent since 2013 but has averaged almost 35 percent from 2001 to 2015. Raising the Corporate Income Tax rate will be extremely unlikely as such a measure will act as a deterrent for foreign direct investment, especially considering that the Corporate Income Tax rate compared internationally is already not that competitive. This is also against the rationale for lowering the rate in the first instance.

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