South Africans wanting to indulge in a night out that includes a few drinks or perhaps a pack of cigs, will have to dig deeper thanks to increases in sin tax.
Image: Freepik
With less than a week to go before the next iteration of the National Budget, Investec doesn’t anticipate major personal tax increases, although cigarettes and booze are, again, likely to cost more.
Finance Minister Enoch Godongwana will, for the third time this year, present government’s fiscal framework in Parliament after two previous versions were rejected because of proposed VAT hikes. The National Budget will be tabled on May 21.
The February National Budget proposed taking VAT from 15% to 17%, while a March document instead aimed to increase this tax by 0.5 percentage points. The second attempt to pass the document, which was mired in confusion as it was not clear whether the VAT hike had been approved, was challenged in court by the DA and EFF.
Days before a judgment was set to be handed down – which would have been a day before the proposed VAT hike came into effect – Godongwana reversed track and said that he would drop the intended VAT increase.
While this gives consumers some relief, it also means Godongwana had to go back to the drawing board. The government will need to find R75 billion to cover the revenue shortfall that it now anticipates because VAT won’t be increased.
Investec chief economist, Annabel Bishop, said in a note on Thursday that significant income tax hikes are not likely to be passed, which will require National Treasury to cut expenditure. She added that the country is also unlikely to see corporate tax increases, “given the detrimental impact on growth and employment”.
On Tuesday, Statistics South Africa said that the unemployment rate was now 32.9%, up from the last three months of 2024 when it was 31.9%. Including discouraged job seekers, a more accurate measure of the job situation, the rate went from 41.9% to 43.1% over the same quarter-on-quarter analysis, Statistics South Africa said on Tuesday.
Old Mutual chief economist Johann Els has indicated that government will also have no choice but to cut spending, while expressing concern that this may affect frontline services such as nursing and teachers.
However, Bishop does anticipate “moderate” sin tax increases.
“An increase in the fuel tax levy is likely to be used to cover part of the funding gap,” she said. “The take from excise duties (sin taxes) is estimated at an additional R1bn in March and may be slightly higher.”
National Treasury has also recognised the need to bolster tax collections at the South African Revenue Service and has increased the institution’s funding,” Bishop said. She added that the tax man is owed some R800bn in unpaid taxes, while the funding gap for the budget deficit was estimated at R375bn for 2024/25 in the March budget.
Investec is predicting economic growth of 1.3% this year, a less optimistic than Moody’s recent forecast of 1.5%.