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South Africa's forthcoming budget speech for 2024/2025: Addressing the imperative of closing the fiscal deficit

Updated: Feb 20




South Africa’s Minister of Finance, Enoch Godongwana will present the budget speech on the 21st of February 2024. The country has a fiscal deficit, marked by a decrease in tax collections and higher government spending. As of November 2023, tax collections only rose by less than 2%, while expenditure increased by 8% compared to the same period. In November 2023 the minister signalled that he will need to propose tax measures to raise additional revenue of R15bn in the 2024/2025 financial year, starting in April 2024. 


The key question is how the minister plans to raise this substantial amount of money. Let's explore a few options;


Corporate Income Tax  

The corporate income tax rate is currently 27%. There is limited scope to increase the corporate income tax rate. Companies are experiencing challenges in maintaining profitability, while the government seeks to attract foreign investment, making an increase in taxes less feasible.


Personal Income Tax

With households already feeling the strain of rising living costs, and with elections looming, increasing personal income taxes is not advisable for the government.


VAT

The VAT rate is currently 15%. Increasing the VAT rate could generate more revenue than the targeted R15 billion. South Africa has one of the lowest VAT rates in Africa and other countries across the world. However, such an increase would burden consumers with higher prices for taxable goods and services, potentially prompting demands for adjustments to zero-rated items to alleviate the impact on low-income households. 


Other considerations

Ongoing energy crisis

With the ongoing energy crisis the government is expected to include measures to stabilize energy supply, boost infrastructure investment and promote private investment in renewable energy. Last year, the minister announced incentives to spur private investment in renewable energy. These incentives will most likely continue to apply.  


Focus on curbing wasteful expenditure

Emphasis on curbing wasteful expenditure would be a big win as the public prefers to hear about this than tax hikes. 


Digitisation

In the current era of digitisation, it may be prudent for the government to adopt innovative technologies and enhance digitization efforts to boost efficiencies in revenue collection, as recommended in the medium-term budget policy statement (MTBPS). Digitisation will also curb fruitless and wasteful expenditure.


Keep an eye out for highlights from the budget speech on our LinkedIn and YouTube channels. Stay tuned for updates! 


Sources: 




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