During his 2018 national budget speech on 21 February, former Finance Minister Malusi Gigaba announced that the government would invest R57 billion in free tertiary education. This is to help those from households with a combined income of under R350,000 per annum to study further and secure better futures for themselves.

Support for the plan
While the South African Institute of Professional Accountants (SAIPA) fully supports assistance to enable higher education, measures must be implemented to ensure the country benefits from this substantial investment. This is according to Ettiene Retief, Chairman of the National Tax and South African Revenue Service (SARS) Committee at SAIPA.
 
“Yes, we need to assist those who aspire to be more but find themselves bound to a lower income group,” he states. “However, according to the then Finance Minister, this will be the fastest growing expense line item in our budget year on year, and several shortcomings need to be addressed.” The allocation is expected to see an average annual growth of 13.7%.

No correlation with skills shortage
South Africa suffers from a shortage of specific skills and would do well to direct funding to the degrees that will give it an economic advantage. “We should provide guidance to steer the youth as merely obtaining a degree will not guarantee a job or ensure an economic return on investment,” says Retief. Free degrees should be used as an incentive for young people to follow valued career paths.

No skills retention plan
After completing their studies, graduates are under no obligation to remain in South Africa. “If they use their degree as an entry qualification to another country,” says Retief, “we immediately lose the benefits of free education.” Some professions require a period of practical application, like doctors serving in state hospitals, and Retief suggests that a similar requirement should be made of free degree holders.
 
There is no indication of a limit to the amount of time a student may spend on their degree. According to Retief, study credits may remain valid for up to 10 years. “When a person pays tuition or gets a student loan, there is some urgency in completing the degree, but if funding is unlimited the student can take 10 years to complete a three-year degree”. “Also, how do we ensure that the person will even obtain their degree after spending years at university”. Free degrees should therefore be time restricted.
 
Also, higher-education institutions have limited capacity, and can only accommodate a limited number of students.
Lower appreciationIt’s a well-established fact backed by much research that when people get something for free, their appreciation of its value is much lower than if they had to pay for it themselves, even if they only make a small investment. “While free tertiary education is commendable,” says Retief, “the learner should make some investment themselves. This will give students ownership of their studies and the perseverance to achieve their goals.”
 
Overall, Retief contends that the government should only implement free tertiary education with comprehensive guidelines and limitations. “Rather than announcing an arbitrary figure, they need to provide details on how the plan will be implemented and how it will achieve its aim of developing the skills the country needs.”

ENDS

MEDIA CONTACT: Idéle Prinsloo, 082 573 9219, idele@thatpoint.co.za, www.atthatpoint.co.za 
 
For more information on SAIPA please visit:
Website: www.saipa.co.za
Twitter: @SAIPAcomms
LinkedIn: South African institute of Professional Accountants Company
Facebook: South African Institute of Professional Accountants

South African taxpayers have to prepare themselves for several tax increases this year in order for the government to plug the gaping revenue deficit, warns Ettiene Retief, chairman of the national tax and South African Revenue Service (SARS) committee at the South African Institute of Professional Accountants (SAIPA).

Growing deficits 
Finance Minister Malusi Gigaba estimated a tax revenue deficit of almost R51bn in the 2017-’18 tax year during his maiden Medium-Term Budget Speech in October last year.

The deficit is set to increase to R69bn, or even greater, in the tax year that starts at the end of this month, however, this is without having regard to the additional income required to fund tertiary education for poor households. Former President Jacob Zuma made this surprise announcement at the end of last year.

Gigaba will present the budget on 21 February to Parliament.

More tax collections without higher rates 
Retief says taxpayers should expect adjustments to the current taxable income brackets which will increase tax collections without the need to increase the actual rates.

Last year the levels of all the taxable income brackets were increased by 1 percent and a new top personal income tax bracket of 45 percent for taxable incomes above R1.5 million per year was introduced.

Retief says it is “unlikely” that the top marginal rate will be increased any further. He refers to the “Laffer curve” which demonstrates that increasing taxes beyond a certain point is counterproductive, and revenue collection may even decline.
“An increase in the top marginal tax rate may result in increased efforts to evade tax by hiding income, or shifting income and wealth to other tax jurisdictions.”

Wealth and other taxes 
Retief is not convinced that the time is right for a wealth tax. South Africa already has taxes on wealth accumulation such as capital gains tax, estate duty and property levy when acquiring a property.

The maximum rate of 45% already impacts on the tax on trusts, and on capital gains. “People (who fall into the top tax rate) are not only taxed at a higher rate on the income they earn, but it also impacts the tax they pay on their capital gains when disposing of assets.”

This year will see the introduction of the much-debated sugar tax, but at a lower rate as previously proposed. The lower rate will not only yield lower revenue collections as originally estimated but could negatively affect the intended purpose of the sugar tax as international research has indicated that a high tax rate is required.

VAT – the elephant in the room 
Government has been warning that an increase is on the cards. “I would not be that surprised if it is increased,” says Retief. “The political environment is different from what it was just a few months ago. The economic climate has changed and growth prospects are slightly better, so perhaps it is now the time for an increase.” A one percentage point increase to 15% could raise R20bn.

The impact on the poor may be offset by the inclusion of more zero-rated items, or more targeted assistance for the poor. Previously it was announced that the zero-rating on fuel will be scrapped but was subject to consultation. It is unclear how much tax it could generate, given that businesses can claim back their VAT on fuel purchases.

If fuel was subject to standard rate VAT, domestic transport of passengers and luggage is exempt in terms of VAT, which means the owner of a taxi will not be able to claim back the VAT on fuel because of the scrapping of the VAT zero-rating. The cost will most probably be passed on to consumers.

Cryptocurrency 
The increase in popularity and use of cryptocurrencies (such as Bitcoin, Ethereum, Litecoin, Ripple, and IOTA) should be addressed, as the lack of regulation and disclosure could be used to evade taxes and circumvent exchange controls.

There is some uncertainty as to the correct taxing of gains and losses made with trading or holding cryptocurrencies. The South African Revenue Service (SARS) confirmed that it will clarify its position on the tax treatment of cryptocurrencies early in 2018.

Also, the South African Reserve Bank (SARB) issued a media statement on 13th February 2018 in regards to the establishment of the Financial Technology (FinTech) Programme with its first objective to review SARB’s position on cryptocurrencies to inform appropriate policy framework and regulatory regime.

SAIPA Budget Breakfast
SAIPA will be hosting its annual Budget Speech Breakfast on 22 February at the Royal Elephant Hotel and Conference Centre, in Centurion where a panel of expert speakers will discuss the impact of the President’s announcements. To book, please visit https://www.saipa.co.za/events-resources/

ENDS

For interviews with Ettiene Retief contact: Idéle Prinsloo, 082 573 9219, idele@thatpoint.co.za, www.atthatpoint.co.za
For more information on SAIPA please visit:

Website: www.saipa.co.za 
Twitter: @SAIPAcomms
LinkedIn: South African Institute of Professional Accountants Company 
Facebook: South African Institute of Professional Accountants