Tax hikes pointless in South Africa’s weak economy – Nedbank

South African Finance Minister Enoch Godongwana’s plans to raise additional taxes as he tries to arrest runaway debt will be ineffective given the battered economy, according to the country’s fifth-largest bank by value.

“Raising taxes in a weak economy is counterproductive, it will not raise that revenue,” said Isaac Matshego, a senior economist at Nedbank.

Godongwana in November signaled that he would announce new tax measures to raise an additional R15 billion in his 21 February budget.

The country is facing spiralling debt and growing spending needs that may be exacerbated by elections in which the ruling African National Congress risks losing its national majority for the first time since it took power in 1994.

Lifting taxes would likely squeeze already strained consumers and hurt corporates, particularly in the mining sector, where weaker commodity prices and higher operational costs due to incessant power cuts and logistics bottlenecks have hurt profitability.

“We would not expect higher revenue to come from higher taxes. We saw that happening, for instance, with VAT,” Matshego said. “With the higher VAT, people just spent less, and there was a drop in tax collections.”

South Africa in 2018 jacked up value-added tax on some goods and services to 15% from 14%.

Nedbank sees the economy growing 1.1% in 2024, compared with an estimated 0.3% last year. 


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