Finance Minister Enoch Godongwana said personal and corporate tax increases in 2024 remain on the table, although it is a “difficult exercise”.
Godongwana commented on tax increases in an interview with SABC News on the sidelines of the World Economic Forum in Davos.
The minister previously said South Africa’s large and ongoing budget deficit is a cause for concern.
In the 2023 Medium-Term Budget Policy Statement, he said the consolidated budget deficit has risen to 4.9% of GDP in 2023/24.
This deficit was much higher than the estimated 4% of GDP in the 2023 budget, which means the government will need to find money to plug the gap.
South Africa’s deep and longstanding fiscal challenges are rooted in a long‐term pattern of low economic growth.
State spending has exceeded revenue since the 2008 global financial crisis, resulting in persistent large budget deficits.
The government is now left with three choices – spend less, borrow more money to plug the gap, or increase taxes to raise more money.
However, raising taxes will not necessarily generate more revenue for the state. South Africans are already overtaxed, and raising taxes may decrease revenue.
Godongwana is aware of this challenge, which is why he is hesitant to commit to tax increases to address the budget deficit.
“Increasing taxes in this environment is a difficult exercise,” he said. “I am not ruling it out. I am saying it is a difficult exercise.”
He highlighted that the government cut corporate tax from 28% to 27% in 2002, and increasing it again will be “very hard”.
“Additionally, consumers in South Africa are in a tight space now for personal income tax. That’s also going to be a difficult area to go into,” he said.
“I can tell you now, we are operating in a constrained fiscal space, so the message we are likely to put across in February will be a difficult one.”
Increasing taxes carry risk
Award-winning economist Dawie Roodt said increasing taxes in South Africa would do more harm than good.
He highlighted that only 1.12% of taxpayers – roughly 163,702 South Africans – pay 30% of total personal income taxes in the country.
Even more concerning is that only 770 companies pay 62.5% of total corporate income tax (CIT). 4.4% of companies pay 95% of total CIT.
“This means the country has an alarmingly narrow tax base, which is a massive concern for the state’s finances. You cannot increase this,” Roodt said.
Roodt warned that there is no room to increase taxes as rich people and companies will leave the country if it happens.