CAPE TOWN/JOHANNESBURG – While concerns have been raised that high income earners will do more to evade taxes following an increase to 45%, Deputy Finance Minister Mcebisi Jonas says National Treasury has no choice but to place the burden on the rich.
On Wednesday, Finance Minister Pravin Gordhan unveiled the 2017 budget against the backdrop of slow economic growth and intolerably high unemployment.
Personal income tax revenue showed a shortfall of R30 billion due to a slowdown in the economy.
Government plans to tax people who earn more than R1.5 million a year 45% of their taxable income.
Jonas says Treasury has to maintain the progressivity of the tax system by asking the rich to pay more.
At the same time, he says the department has been engaged in talks with the South African Revenue Service (Sars) over the last two months to assess how it can strengthen its tax administration.
Jonas says talks to strengthen the tax administration are on track.
Some experts have warned top bracket taxpayers might show resistance to hikes.
The tax hike was among other increases he announced, such as a 30% hike in the fuel levy and an extra 9 cents per litre for the Road Accident Fund levy.
Tax on dividends have also been raised from 15% to 20%.
Deloitte Africa's head of taxation services Nazrien Kader says, “We expected it and all it means is that your top 100,000 taxpayers, who earn more than R1.5 million, will now be subjected to a tax rate of 45%. What the minister actually expects is to get R14.4 billion by virtue of this change.”
Sage tax legislation expert rob cooper adds the hike could have a negative impact.
“It’s a big increase and we may reach a point where there’s resistance. The one part is taking your money and running or finding clever ways to dodge tax.”
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The finance minister addressed many issues in his speech, including the need for an inclusive economy.
He says 2017 has to be the year the country focuses more on inclusive economic growth.
To achieve this, Gordhan says more radical transformation is needed.
Speaking ahead of his address on Wednesday, the minister said poverty in the country was immoral and unacceptable.
He has called for a charter on economic rights to promote inclusive growth.
“The root of the matter is that poor people in South Africa don’t have opportunities and assets.”
He added the big question in South Africa was who benefited from transformation.
“The key issue, as is in the rest of the world, you cannot have a small elite group pocketing the benefits of economic growth. That does not create a sustainable economy or sustainable society.”
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