Tax Increases Needed To Fund Basic Income Grant

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A 12-month extension of the Social Relief of Distress (SRD) grant is costing the government R44 billion. When the grant comes to an end March 2023, millions of people living in South Africa will be without the crucial support mechanism.

 


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During the 2022 Budget Speech, Finance Minister Enoch Godongwana announced that the government will allocate R3.33 trillion to the social wage to support vulnerable and low-income households.

Funding for South Africa’s social wage is in large part derived from tax collection. Personal Income Tax  accounts for 39,1% of revenue collection. This is followed by Value Added Tax (VAT) 26,5% and Corporate Income Tax on business profits 16,4% as the largest shares of tax revenues.

Research and consulting firm Intellidex’s latest report cautions that the implementation of a Basic Income Grant (BIG) could cause harm to the country's economy if not handled properly. They add that there have been far too little discussions around the funding for the potential permanent support.

Intellidex Head of Capital Markets Peter Attard Montalto explained that after evaluating several funding models for a BIG, even optimistic scenarios with options like debt financing were still quite troubling.

He explained that changes made to the country’s tax policy will result in behavioural changes among those who would be taxed more. This includes the immigration of individuals who would be forced to contribute more tax.

“You can't assume that implying a wealth tax is simply going to lead to no reaction by the people that you're taxing. Now there's a morality argument if that's right or wrong but I think that's just the fact of how things work around tax and we're seeing that of course a number of people offshoring their tax affairs already in the last couple of years” explained Montalto.

They add that the report is not to say whether implementing a BIG is morally right or wrong but rather to present the limited options around how this permanent support could be funded. 

 

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