CERTAINTIES OF LIFE

JULY marks the start of a new tax year; this brings marked changes this year as the corporate tax reduces from 27.5 per cent to 25 per cent. Furthermore a withholding tax of 10 per cent will now be imposed on interest earned and on capital accumulation.

This is a stark reminder of the adage that the only certainties in this life, are taxes and death. I will not try and unpack what these changes mean to the individual on the street, for detailed information on that end visit, 1717567737402-Income_Tax_Order___2024.pdf (ers.org.sz). Essentially what I concluded is the people will pay more taxes while the businesses will pay less taxes. Essentially, as an individual the tax burden has increased, for those who are savers.

Burden

All persons in Eswatini pay tax in one form or the other. A pay check is taxed, to use that money one pays VAT. Given the new amendments, if you save a portion of that money to make interest, 10 per cent of that interest will now be taxed. All gains on investments that one makes with their after tax income will be taxed at 10 per cent going forward. I contend that the timing for these taxes is not appropriate. I say this because, we are in a high cost of living environment and government has not done anything to assist emaSwati cope with the high costs of living. Interest payments from savings, cooperatives, money market investments inter-alia are some of the sources through which the people cope with the high cost of living pressures. In delivery of his budget speech the Finance Minister acknowledged this fact; no concrete actions were put in place. We had banked on hope that the cost of living pressures would rescind as we progressed further into 2024/25.

However, the fact on the ground is the rate at which prices are increasing (inflation) has slowed down. However, prices still remain high and this is a global fact. Furthermore, interest rate cuts are still being forecast but the odds have since turned to at least two rate cuts and at most one rate cut this year. The net effect of these taxes will be a reduction in disposable incomes at household levels at a time when households are struggling to make the income they have at present gone further.

Service delivery

The tax changes come at a time where hospitals are without the basic medications, doctors are on strike, school feeding programmes are struggling to provide nourishment to the people. It is easy to get people to accept changes in taxes if they receive congruent services for same. At this point we are introducing steeper taxes when service delivery is at paltry levels.
Citizens ought not to be taxed simply for breathing the air in this country; however, they should be taxed so government ‘duty’ bearer can execute her duties to the people effectively. How does one even begin to convince emaSwati to pay more taxes when they would still have to take their own money to buy drugs which the government ought to have provided? Service delivery must improve so that emaSwati get value for money.

Redistribution

Eswatini is among the top 10 most unequal societies in the world. It is a common secrete that the richest 20 per cent of the population control 80 per cent of the country’s wealth. I believe that instead of targeting cooperatives and small businesses with presumptive, taxes efforts should be consolidated to target the richest 20 per cent. Usually, the 20 per cent do not get their money through cooperatives. Furthermore, most interest income for the affluent is not mobilised domestically but rather off-shore. Also, they stand to benefit further from the cut in corporate tax. This is where ERS should be focusing its efforts, how do we get those with the money and the wealth to pay more into the pool. We need the money in their hands to redistribute through the economy. The government needs to be serious about her redistributive role, a good tax system ought to be redistributive. The tax incidence on the poor is relatively large compared to the affluent.

Concerns

One of the concerns we had when the minister proposed reducing corporate tax from 27.5 per cent to 25 per cent was, where were we going to find the money to fill the gap. Furthermore, one wonders if indeed the strategy is going to work? Are companies going to reinvest in the country? Are we going to see improvements in the jobs? Salary levels? Is the private sector really going to lead growth or they are just going to declare dividends which will be taxed at 10 per cent. This might have a net leakage effect rather than a net injection effect into the fiscal purse. I hope we are not putting money in the hand of corporates who already have a lot. While to balance we are taking from the ordinary liSwati on the street.

Opinion

It is my professional opinion that the timing of the tax reforms, particularly targeting households and cooperative is not best considering the surmountable cost of living pressures. Furthermore, deteriorating public services will make it difficult for the people to accept these changes.

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