National Treasury Acting Director General Ismail Momoniat says South Africans can expect carbon and sin taxes to continue to escalate as local and global challenges continue to strain the economy.
Speaking at the South African Institute of Taxation’s (SAIT’s) Tax Indaba on Wednesday (September 7), Momoniat said the biggest short-term problems facing the country are economic growth and an impact on unemployment, while also addressing poverty. and inequality are addressed.
These are not new challenges, but ongoing ones, he said, exacerbated by global problems — including the fallout from Covid-19, the invasion of Russia and the ongoing war in Ukraine, chip shortages and ‘zero Covid’ policies on foreign countries. markets such as China, which cause frequent economic shutdowns.
“We live in a world that has become very insecure – more insecure than many of us are used to. They present us with new challenges in the short term’, says Momoniat.
The acting DG said these short-term challenges detract from those long-term – notably climate change.
“If there is a long-term challenge, such as climate change, we have to do better than how we deal with short-term challenges,” he said, adding that the global environment has become incredibly toxic in tackling such problems and policymakers are divided. Some people lean towards irrationality, he said, without following the science.
Amid this “great uncertainty,” Momoniat said the world is lagging behind set targets around carbon emissions, which will have a greater impact on the local economy going forward.
“The world has not reduced emissions. That’s just a fact,” he said. As a result, instruments such as carbon taxes will escalate, with the government likely to rely on policies and regulations to deal with the growing crisis.
“One tax that is going up is the carbon tax,” said the acting DG. “Because we are so far behind, taxes are going up. It will be even higher in 20 years. We (National Treasury) are going to be stricter on surcharges and exemptions.”
The acting DG acknowledged the contradiction in pushing for action on climate change as South Africa leans on fossil fuels to tackle its energy crisis, but said tackling short-term challenges should not cloud long-term goals.
For example, Momoniat pointed to Europe – which is facing an energy shortage due to the lockdown of Russia – which is currently switching to coal power to get through the winter and ensure that people survive. However, the region is making great strides in renewable energy sources. The short-term challenge does not replace the long-term strategy.
Momoniat said it is difficult for Treasury to give a strict indication of how policies and taxes will move forward, especially as there is no certainty. “There is no certainty because climate change has introduced so much uncertainty. We try to give a broad direction. We may not know by how much (carbon taxes will increase), but it will be a lot,” he said.
Momoniat said core taxes in South Africa – personal income tax, corporate income tax and VAT – also face new challenges, be it a shrinking tax base, or digitalisation, etc.
He said financing the Basic Income Exchange (BIG) would require a tax increase.
“Don’t be fooled into thinking that you can have a step change in spending and not raise one of the two major taxes, and that will impact growth. You have to understand the tradeoffs.”
When it comes to long-term issues, he said the Treasury uses the tax system to address them. This includes challenges such as climate change and health. In the former, the carbon tax is the most important instrument, in the latter the sugar tax and the sin tax. He indicated that the sin tax and the sugar tax would also go up.
“They do make a difference,” he says.
Read: Warning about South Africa’s shrinking tax base