Speaking ahead of the 2015-16 Budget Speech to be delivered by Finance Minister Nhlanhla Nene on 25 February, SEIFSA Chief Executive Officer Kaizer Nyatsumba said that the struggling South African business community – especially in the metals and engineering sector – cannot afford to pay any additional taxes to Government.
“For a developing country struggling for investment, South Africa ranks among countries in the world with relatively high corporate taxes. Businesses in South Africa are already heavily taxed in the form of direct or company taxes as well as a surfeit of indirect taxes,” Mr Nyatsumba said.
His comments come amid speculation that the Minister might announce a tax hike in this year’s budget in order to close the R27 billion revenue shortfall in the next two years.
The Minister mooted the possibility of a tax increase in October last year, indicating a need to consolidate the budget deficit in the wake of revenue that keeps disappointing due to lower-than-expected economic growth.
“In South Africa, where economic growth is painfully slow and unemployment levels extremely high, the Government would be extremely ill advised to worsen the country’s already bleeding economy by imposing additional taxes on business. As things stand right now, business is struggling, with a growing number of companies downsizing,” Mr Nyatsumba said.
He said that, when South Africa is compared with its fellow BRICS countries, only India – with the advantages of a far bigger population size and competitive wages – had a corporate tax higher than South Africa’s. Compared to South Africa’s 28%, Russia’s corporate tax is 20%, Brazil’s and China’s 25%, with India at 33.99%.
Mr Nyatsumba added that the local economy needed to be stimulated through a variety of measures, including local procurement and Government tax breaks, so that it could create more jobs, and not to be hamstrung through more taxes at a time when business is struggling for survival.
Mr Nyatsumba said that, in its efforts to generate more revenue, the Government would have “to be extremely careful to avoid killing or even suffocating the goose that lays the golden egg,” which includes the middle class and high earners.
“In a country with a small tax-paying population, our pre-occupation should be to grow the economy in order create more employment and to see more people moving to the higher threshold of personal taxes, and not to punish higher income earners by raising taxes,” Mr Nyatsumba said.
Instead, he said, the Government’s priority should be ensuring that every tax rand is used wisely, to the benefit of the country, and that it does not end up in the pockets of some selfish individuals through corruption.
Mr Nyatsumba said that while it was understood that the Government needed more revenue, it could accomplish that goal by ensuring that South Africa was viewed more favourably as a foreign investment destination and by ensuring that greater efficiency existed in all tiers of government, including state-owned companies. He said that options available to the Treasury to raise funds included upward adjustments to the fuel levy and sin taxes, “in addition to better management of public finances”.