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Is a tax hike on the cards for South Africans?

by , 05 June 2014
If you thought the news that South Africa's economy shrank by 0.6% quarter-on-quarter in the first three months of this year was bad. Or the fact that the platinum strike has been going on for 18-weeks, it gets worse.


Well, it seems like a tax hike may be on the cards.

The Business Day reports that, on Tuesday, the Treasury gave the first hint of possible future tax hikes in an oblique statement.

Read on to find out what the Treasury said in the statement and what this could mean for your business.

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Is the Treasury hinting at a future tax hike?

The Business Day reports that in its statement, the Treasury said the work of the Davis Committee 'has become even more significant in light of the economic contraction in the first quarter of 2014.'

You may recall that last year, former finance minister, Pravin Gordhan, set up a Tax Review Committee led by Judge Dennis Davis. The Davis Committee is currently reviewing the country's tax laws and their effectiveness.

Linda Ensor writes that the statement by the Treasury builds on the repeated warnings by Gordhan that in the absence of strong economic growth, the government would have to seek alternative ways of raising finance, including raising taxes.

The ongoing platinum strike, the contraction in the country's economy as well as fears on a recession mean South Africa's economy is struggling to grow. And perhaps the Treasury is hinting at a tax hike as a way to deal with the low tax revenue that'll make it hard for it to fund state debt and expenditure programmes.

The Treasury also made it clear that the Davis Committee's terms of reference noted that 'given the pace of globalisation, the relatively modest economic growth after the 2008-09 economic recession, and the significant social challenges such as persistent unemployment, poverty and inequality, there's a need to review what role the tax system can play as part of a coherent and effective fiscal policy framework in addressing these challenges.'

It added that 'revenue-raising to fund government expenditure is the primary objective of taxation.'

According to the Business Day, the Treasury made these comments in a statement about the newly created subcommittees of the Davis Committee which would deal with mining, Vat and estate duty.

The Vat subcommittee will focus on efficiency and equity and the effectiveness of dual rates, zero rating and exemptions.

What does this all mean for your business?

Legally pay less tax

139 reasons SARS doesn't want you to see this.

A future tax hike could have the following consequences for you business

Last year, MoneyWeb published an article, which explored the possibility of a Vat increase of 14% to 16%.

In the article, they noted that an increase would compromise business cash flows as most businesses account for tax on the invoice or accrual basis, which means, they have to pay Vat over to SARS irrespective of whether they receive payment for the invoices or not.

If the Vat rate increases, it could mean 'your business will have to find additional sources of bridging funds to account for the period between paying the Vat and receiving payment from customers.'

This is just one of the things that should concern you about a future tax hike. We'll keep you updated on this issue because major tax changes could be on the cards especially when the Davis Committee concludes its work.

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