South Africa to raise income, alcohol and tobacco taxes in 2017/18 budget

Fri Feb 17, 2017 12:54pm GMT

By Vuyani Ndaba

JOHANNESBURG (Reuters) - South Africa's finance minister Pravin Gordhan is likely to target income, alcohol and tobacco taxes in his Feb 22 budget to reassure rating agencies that he will gradually rein in the deficit in coming years, a Reuters poll found.

The poll, taken in the past week, shows economists expect the government to target a budget deficit of 3.2 percent of gross domestic product in the fiscal year from April 1.

That is narrower than the 3.4 percent estimated for the fiscal year about to end.

The Treasury is then expected to narrow the budget deficit further to 2.8 percent of GDP in the 2018/19 fiscal year and 2.5 percent the following year.

Most of the 15 economists surveyed expect the Treasury to boost revenue with personal income tax hikes as well as levies on purchases of often harmful goods such as alcohol and tobacco products to plug a 28 billion rand ($2.15 billion) shortfall in the new financial year.

"The fiscal situation is a huge challenge for the South African government given increasingly difficult debt dynamics," wrote IHS Markit economist Thea Fourie in a note.

"On the one hand, there is an urgent need to lower the budget deficit in order to avoid a sovereign risk downgrade to sub-investment status; on the other hand fiscal adjustments that will impact GDP growth adversely should be avoided."

A fuel levy increase as well as higher Value Added Tax (VAT) were listed as other possible options for Gordhan to generate new revenue.   Continued...

A bartender serves a beer produced by brewing company SAB Miller at a bar in Cape Town, September 16, 2015.  REUTERS/Mike Hutchings
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