ECAS SUBMITS REVENUE INCREMENT PLAN
ECAS’ Dr Mike Matsebula

ECAS SUBMITS REVENUE INCREMENT PLAN

The Economic Association of Swaziland (ECAS) has submitted measures that could be used to increase the country’s revenue base. ECAS’ Professor Mike Matsebula said the implications are slotted into three categories. Speaking during the 2019 Post Budget Seminar held at Royal Swazi recently, ECAS’ Dr Mike Matsebula propsed three
possible options. The first comprises revenue increases, which occur without adjusting tax rates. He said
because the tax rates were constant, revenue increases occurred simply because the tax base had expanded. The second category comprises revenue increases associated with adjustments in the tax rates. The tax base can remain constant or change appropriately. The third and last category comprises revenue increases in the wake of the introduction of new measures. “The taxes are responding well in terms of generating revenue for government. As long
as the economy is growing, there will be more than proportionate increases in the total tax proceeds,” said Dr Matsebula. The change is that government is proposing to reduce the corporate income tax. Dr Matsebula said because corporate tax was only one of a number of factors which promote investment, especially the inflow of foreign direct investment, but certainly not the only one. “More importantly, there may be other factors which prevent the increase in investment, even if there has been a reduction in the corporate tax rate,” he continued. He said if the corporate tax rate was not reduced, some companies, especially those affiliated to others abroad, might resort to complex ways of moving income out of the country. “In other words, untaxed net income is not the only source of
moving income out of the country. For instance, gross income can be moved out of the country through transfer pricing and management fees.” Dr Matsebula further noted that in such cases, government would have foregone tax proceeds unnecessarily. ECAS suggests that government should maintain an appropriate balance between reducing
corporate tax and removing other impediments to investment increases. Government should also make sure that the reduction in the corporate tax rate does not introduce further distortions into the economy. “One distortion, which should not be allowed to increase, is the virtual exclusion of indigenous small and medium enterprises (SMEs). Right now, indigenous SMEs have been virtually pushed out of the retail sector in urban areas throughout the
country. This situation has also crept into rural areas, which are supposed to be the exclusive preserve of indigenous SMEs. With the exception of fuel tax, as per category 2, taxes do not have serious negative implications
for the economy. However, a problem may arise if the margins of increase are too big,” he argued. Indeed, this has been a major flaw in the past when government typically went to sleep for years and when it woke up, it increased the tax rates by big margins. ECAS contends that this is disruptive to business and household operations as well
as being an unbearable burden for low-income households. “It is better to monitor these levies continuously and adjust them by the lowest possible margins at short intervals.

…contends that fuel levy is too high
The Economic Association of Swaziland contends that the proposed E1.20 fuel levy per litre is simply too high for the Eswatini economy. Making the ECAS presentation during the Post-Budget Seminar last week, Dr Mike Matsebula said
the introduction of the fuel levy has negative attributes: “One is its regressive nature in the sense that it falls more heavily on poor households. The second is that it tends to be inflationary. Through inputs and outputs which
have to be transported around, it increases the prices of products.” He argued that transport operators would demand higher prices, which would further prompt workers to demand higher pay. An inflationary cycle would be generated. The third negative attribute was that, ultimately there would be street protests, which may lead to riots as has happened in France, Sudan and Zimbabwe recently. Since VAT is a tax on the consumer, its imposition on
electricity purchases will increase the tax burden in a regressive manner, as per category 3, its burden will be
heavier on the low-income households, said Dr Matsebula. Since many small businesses absorb the VAT and not
claim refunds because of administrative complexities, they will be adversely affected. This would in turn be bad
news for the SME sector. The absence of VAT on electricity so far has been a creditable effort by government to not
only promote small business operations, but also improve household income distribution. “If the argument is that charging VAT will assist independent power producers to be established, then there must be a search for an instrument, which avoids the weaknesses of VAT.” Going forward, the indigenous SME sector will need various types of interventions. In conclusion, he said ECAS was ready to provide a platform to interrogate such analysis.

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