Accounting for the “ missing fiscal year ”

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South Africa must succeed. There is simply too much to lose – for too many people – if there isn’t. About 27 years ago, our democracy, like the drafting of our Constitution and the political leadership of the day, deserved due praise for moving the country forward. It’s time for another change like this – in fact, it’s long overdue. Of course, it seems we have presented this narrative before every national budget speech lately. And every year we ask for similar things.

We continue to talk about our increasingly problematic sovereign debt levels, the growing and unsustainable public wage bill and embezzlement. We continue to question the rationale for creating more SOEs despite their high failure rates and predictable drain on the budget.

Covid-19 has only accelerated a situation that is getting worse for us: we are cutting more jobs, losing more intellectual capital due to emigration, while trying to get through a global health crisis.

Vaccinating all South Africans and sustaining economic life are good reasons to take on more debt, but we have to recognize that there is a point of no return, a point where we will simply have a risk of falling. too much credit to ask for more financing – much like Zambia, which defaulted on a payment of $ 42.5 million (Rand 631 million) on a Eurobond.

Here are some steps we can take to position the country for growth in 2021 and beyond:

Borrow with caution and allocate wisely

The South African economy had shrunk by 51% at an annualized rate in the second quarter of 2020. With 1.7 million fewer people contributing to the economy since the start of the pandemic and an unemployment rate of 30.8%, Paying off our R3 trillion sovereign debt has become more difficult, especially as we borrow at an average rate of R2.1 billion per day.

While a pandemic is not the time for austerity in health spending, our loans should be geared towards long-term economic development rather than just the public sector, social security and debt servicing. This is all the more important as South Africa will likely only reach its pre-Covid gross domestic product by 2024 at the earliest.

The president’s reconstruction and economic recovery plan aims to focus on aggressive investments in infrastructure and any job opportunities that will entail. Increasing local production and exports could increase the country’s annual output by R200 billion while decreasing our dependence on imports by 20% over the next five years, according to the State of the Nation Address . Providing loans to lucrative infrastructure and investment projects will help us pay them back down the line.

Public expenses

There is a social contract between the citizens of a country and the government which collects the taxes. When this contract is broken by financial embezzlement and corruption, there is a risk that tax collections will decline. The SA Revenue Service (Sars) needs to realign its mandate so that taxes are seen as an economic and moral good that gradually helps realize the rights of all citizens. This problem cannot be solved with an advertising campaign. It needs good political decisions that translate into real action, with serious consequences for the corrupt.

Contrary to popular belief, South Africa’s biggest tax concern is not necessarily tax collection. It is our supply bill and what we do with the money once we have it. Our tax dollars are being siphoned off by endless bailouts of state-owned enterprises that continually fail to generate revenue, overburdened public payrolls, and unnecessary spending.

As we need more tax revenue to pay off our snowballing sovereign debt and fund Covid-19 vaccines, the government needs to limit spending to ensure it does not continue to spend unsustainably.

Broaden, rather than deepen, the tax base

Governments around the world are looking to broaden their tax bases – and South Africa is no different. However, we suffer from a demonstrable trust problem, where taxpayers fear that increased transparency on their part will translate into a higher level of control on the part of Sars. It is much more helpful for Sars to redirect his attention to individuals and businesses that are not compliant with the tax rules rather than to those that are.

The pandemic has eroded employment figures and potential taxpayers, calling for a widening rather than a deepening of the tax net. We need to implement appropriate fiscal measures for the small, medium, micro and informal business sector, which represent around 2.5 million workers and business owners and account for around 20 percent of our gross domestic product.

Wealth tax

In the annual budget speech, we expect to see Finance Minister Tito Mboweni recommend a wealth tax – not on the income generated by assets, but on the assets themselves. Many fear that with little time to make up for the shortfall in R280bn from the previous fiscal year, the government could use over-inflated asset values ​​from outdated financial data sets before the pandemic.

When Pravin Gordhan raised income taxes in 2017, as sitting finance minister, South Africa experienced a surge in financial emigration. To date, Sars has registered over 400 billion Rand of financial assets in offshore investments.

Another wealth tax will likely see wealthy individuals in South Africa, the vast majority of whom are business owners and employment providers, withdraw from the country in search of more welcoming jurisdictions where they are not. penalized for having contributed to the country’s growth. economy.

This short- and medium-term tax strategy is very short-sighted, as the personal income tax burden already weighs heavily on the shoulders of the richest 10%.

If the National Treasury implements a wealth tax, it cannot – should not – be done without the end of the game in mind. He desperately needs to make South Africa attractive to large-scale international investors, while also getting citizens to stay and actively invest in the country.

South Africa is right, it is the shift from extreme currency controls to a capital flow management system. This will position us as a more attractive investment environment that facilitates inflows of foreign direct investment.

While there are always many solutions, officials and civil society must be held accountable – alone and for each other. Rhetoric, TV commercials about tax compliance, and haughty pseudo-policies have only gotten us so far. Now is the time for implementation.

Sars must take the first step in promoting nation building, a sense of trust and unwavering reliability. This requires an independent accountability mechanism – modeled on the National Anti-Corruption Strategy which will report to Parliament as President Cyril Ramaphosa pointed out during Sona. Otherwise, we risk getting closer and closer to running out of money and options.

Marcus Botha is Head of Corporate Tax Advisory at BDO South Africa


Accounting for the “ missing fiscal year ”

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