South Africa’s failing fiscal framework should be keeping you up at night.

With a budget shortfall of R50 million in 2017 alone, one mechanism the minister might employ to source additional revenue could be to increase South Africa’s VAT.

Because, although overt and disgusting practices of corruption are the country’s main reason for money loss, it will most likely be us, the people, who will be footing the bill.

The bleak picture was painted during last October’s budget speech, explains BusinessTech:

[T]he consolidated debt to GDP ratio had widened to 4.3% from a target of 3.1%, the projected tax shortfall for 2017 was estimated at R50.8 billion, while debt-servicing costs were cited as the fastest growing expenditure item on the national balance sheet.

This was followed by Finance Minister Malusi Gigaba’s recent statement, where he said that “the country is facing a difficult fiscal framework, and that South Africans will have to bear some pain as a result of tough decisions being made to stabilise debt levels”.

Eish.

However, there’s no point in waiting until February’s budget speech to find out what the real deal is.

Rather, let’s take a look at what economist Maarten Ackerman has to say on the subject:

“Government may also be backed into a corner by the promise of free education. They will not be willing to borrow more, and increasing the VAT rate would represent the simplest method for producing the greatest amount of income needed,” said Ackerman.

“While politically sensitive, the ANC could very well be willing to risk the controversy of this decision on the back of goodwill generated by Ramaphosa’s ANC conference victory, and the hope that any political fallout would have been forgotten by the time of the next national election in 2019.”

The country’s VAT has remained unchanged since 1993, owning to a “concern over the effect that further tax increases would have on the poor”:

Ackerman noted that government could consequently consider introducing a variable VAT rate such as in the UK, with a higher rate charged on so-called luxury items such as alcohol and sweets, while extending the number of basic items that have a zero-VAT rating.

And corporate tax? Ackerman suggests that raising it will be unlikely, as this could impact business’ incentive to create more jobs.

He also added that “some form of wealth tax on the net-asset-value of an individual’s estate could also be a possibility”.

The budget speech is set for February 21, so your three week countdown begins now.

For some, that might entail adjusting your lifestyle to accommodate a potential tax increase, and for others it might mean getting a tax practitioner who is up to speed to work out what’s what.

The easiest and best way to do that is hook up with local and reliable tax consultants, Galbraith | Rushby.

They keep their clients as their number one priority, building long-standing relationships by doing it right.

The first time.

As soon as Gigaba gives us the breakdown on all this, you can trust Galbraith | Rushby to follow through with whatever action needs to be taken in a swift and professional manner.

[source: businesstech]