EY says the funds is unlikely to be centered on tax enforcement, improved collections, and property taxes

The South African budget, which will be presented to parliament on February 24th, is unlikely to lead to the introduction of a wealth tax or other significant tax hike.

Rather, the National Treasury Department is more likely to take steps to ensure tax enforcement and collection, says the Professional Services Network EY.

“The budget trend since 2019 has mainly been to equip South Africa Revenue Services (Sars) to improve tax enforcement and improve tax collection. We do not expect any significant deviation from this focus in this month’s budget, ”says EY South Africa Tax Leader Ekow Eghan.

However, he adds that EY continues to believe that a gradual reduction in corporate tax rates, unpopular as they may be, could help boost South Africa’s trade, economic reform and competitiveness.

“The reduction in the corporate tax rate is a matter of when. In the wake of the pandemic, it is also particularly important to help South African companies restore their finances and thus reduce the risk of further job losses, ”he explains.

On the subject of introducing a wealth tax, Eghan says that while the jury appears politically attractive, it is unsure whether such a tax will achieve its goal better than other alternatives.

A wealth tax that generates significant tax revenues in an efficient manner should be welcomed, but only if it is also fair and difficult to avoid, he explains.

“Because of the complexity of designing and managing such a tax, it is not a policy direction South Africa should rush in without a broader public consultation process,” he added.

Eghan says that despite a lack of clarity about how much additional enforcement capacity there is currently in Sars, some taxpayers can expect a controversial relationship with Sars as they are pulling every lever of their compliance enforcement powers to bridge the “tax gap”.

The tax gap is the difference between the actual amount of tax owed in a given tax year and the amount that is paid on time.

“We expect an increase in audits and a stricter application and interpretation of tax law. This will inevitably lead to more disputes as compliance behavior is in the limelight, ”warns Eghan.

“Taxpayers should be prepared for more regular settlement negotiations with Sars and a greater willingness to go to court.”

Eghan adds that a poorly coordinated or overly aggressive enforcement program by Sars could undermine remaining trust and collaboration between compliant taxpayers and the tax administration.

In the meantime, economists and tax experts from the professional service company PwC have also published their forecasts for the 2021 budget.

This means that budget margins will be cut and re-prioritized for medical and other necessary social expenses.

It is also called Finance Minister Tito Mboweni is likely to reaffirm the government’s commitment to lowering public sector wage costs.

In addition, they believe that he will highlight the need for an active approach to debt management.

According to PwC, political pressure is likely to prevent the national treasury from reducing spending on bailing out state-owned companies.

With soaring national debt, rating agencies are unlikely to be happy with the 2021 budget, the company adds.

The company believes the budget will likely include full details of the total cost of launching the Covid-19 vaccination program. and adds that there will be no need to raise taxes to fund the vaccination program.

According to PwC, tax revenues are likely to exceed the forecasts of the MTBPS 2020 by R 100 to 108 billion.

The tax increases proposed in MTBPS 2020 are expected not to be introduced while the tax increases eased for the external years will be relaxed.

PwC estimates that tax revenues for the 2021/22 financial year will amount to around R 1.3 trillion.