Abundant Profits Tax, Windfall Taxes in South Africa Receives New Drive

Abundant Profits Tax, Windfall Taxes in South Africa Receives New Drive
Abundant Profits Tax, Windfall Taxes in South Africa Receives New Drive

Abundant profits tax and windfall taxes are some of the new taxable areas proposed in the Parliamentary Budget Office (PBO) and they formed part of its Medium Term Budget Policy Statement (MTBPS) presentation on 7 November.

The PBO was created to assist the finance and appropriations committees in the Houses of Parliament.

Through its presentation, the PBO analyzed the 2023 MTBPS and criticized Finance Minister Enoch Godongwana’s MTBPS, claiming that his proposals don’t do enough to attend to the priorities set out in the 2023 State of the Nation address.

Check out this other efforts by South Africa to intensify tax revenue

Abundant Profits Tax / Windfall Taxes: Details

The office stated that going after a budget surplus in the current economic, societal, and public finance environment tends to harm the real economy.

It continued that the cost of lowering spending on the economy’s performance is excessive because the government is less likely to realize many crucial national development outcomes.

Still, as the pressure on the state’s finances continues to increase due to an expanding fiscal deficit, action needs to be taken.

These growing yearly budget deficits have gotten to a point where the government will have to borrow an average of R553 billion yearly over the medium term.

According to the Minister, the gross debt is expected to become stable at 77% of GDP by 2025/26.

It will increase from R4.8 trillion in the present financial year to R5.2 trillion in the following financial year. By 2025/26, it will go beyond R6 trillion.

He therefore called for something to be done as soon as possible to prevent the economy from collapsing.

Although numerous economists have posited that there is a need for the government to curb its spending as the base is so stretched that additional taxes will be inimical, the PBO has argued that the country can make more tax revenue from its “relatively broad tax base”.

Potential New Tax Revenue Streams

The different potential new tax revenue streams proposed by the Parliamentary Budget Office (PBO) include:

  • Windfall taxes for sectors that gained from the commodities boom.
  • Surplus profits taxes on companies that used the inflation upsurge and interest rate.
  • A progressive wealth tax.
  • Eliminating tax incentives following a review to establish which incentives are no longer effective.

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