News in South Africa 11th September:

1. SA losing $62bn annually to illegal imports:

South Africa is losing more than $62 billion a year because of illicit financial flows (IFFs), which could be used to fund the building of schools, hospitals and safer roads.

SA losing $62bn annually to illegal imports
Photo by Tom Fisk

This was highlighted at a conference on increased illegal trading in automotive components, at the Automechanika even in Johannesburg.

Tyre Import Association of South Africa (Tiasa) chairperson and MD of Treadzone Charl de Villiers said a pilot study by the United Nations Convention on Trade and Development (Unctad) focused on measuring tax and commercial IFFs, revealed that South Africa is losing out on $21.9 billion per year in inward flows and $40.9 billion in outward flows.

These inward flows are being lost because of misdeclarations (either on purpose or by mistake), undervaluation of invoices, tax evasion, round tripping and many other things, De Villiers told a conference hosted by the Tyre, Equipment, Parts Association (Tepa) at Automechanika last week.

De Villiers said the majority of outward flows that are being missed involve the minerals sector, with “the mining guys playing games with the values they export”.

He said misdeclarations in the tyre sector involve people selecting non-tax tyre codes and importing tyres as rice or wheelchair tyres, which do not attract duties.

De Villiers referred to an example of tyres being imported via Namibia as wheelchair tyres when in fact they were ultra-high-performance tyres.

He said Tiasa is part of a SA Revenue Service (Sars) forum where they share information and knowledge, but highlighted that Sars “don’t understand the data that they see” and do not know what the different tyre sizes mean.

“So zero tax is being paid, and they are also not paying the R2.30 [recycling] levy,” he said.

SA Tyre Manufacturing Conference (Satmc) managing executive Nduduzo Chala echoed this point by highlighting two major risks – South Africa’s port operations, and the misdeclarations that take place at the ports, and the lack of understanding of the tyre industry.

Satmc represents the four local tyre manufacturers – Bridgestone, Continental, Goodyear, Sumitomo.

2. Government tax warning:

The National Treasury has warned the government that a tax increase or big spending cuts were needed to continue funding the R350 Social Relief of Distress Grant (SRD Grant).

The Sunday Times reported that the Treasury told President Cyril Ramaphosa and his ministers that the government faces unprecedented revenue and spending pressures.

The financial pressure is a result of a challenging economic position because of extensive load-shedding, sticky inflation, and poor growth.

Should the government want to continue funding the SRD Grant, the National Treasury suggested a two percentage point increase in VAT.

The other option is to cut numerous government initiatives, including visible policing, the expanded public works programme, and the mine health and safety inspectorate.

Other initiatives that face the chop include welfare support, environmental protection, and intervention programmes on food security and informal settlement upgrades.

The Sunday Times report followed shortly after Finance Minister Enoch Godongwana hinted about tax increases to fund the government’s growing expense bill.

Godongwana said South Africa’s economic growth and tax revenue have been hampered by the energy crisis, with record load-shedding levels and logistics problems.

Therefore, the government’s revenue for this financial year is projected to be significantly lower than initial estimates. 

The National Treasury revealed that the budget moved to a deficit of R143.8 billion for July, the largest since 2004 and wider than the R115.5 billion forecast by economists.

If the current pace of underperformance in tax collections is sustained throughout the year, gross tax revenue will be R82 billion lower than the February projection.

Godongwana said there are three ways to address the revenue shortfall and fiscal deficit.

  • Increase taxes, which is challenging and unpopular.
  • Borrow more money, which has limitations.
  • Budget cuts which also have limitations on how much you can cut before hurting the system.

“I suspect you may need a combination of these instruments moving forward. You will probably get that on 25 October during the medium-term budget policy statement,” he said.

3. Grid expansion financing team-up:

The Johannesburg Stock Exchange will co-host a seminar with Eskom later in September to help the power utility deal with various financing options needed to fund its crucial grid expansion programme, according to Electricity Minister Kgosientsho Ramokgopa.

The minister previously said Eskom needs upwards of R210 million for the expansion. He said at a  briefing on Sunday that aside from a $8.7 billion facility that came out from the COP26, the New Development Bank, known commonly as the BRICS bank, said recently that it also had a $3 billion financing option available for Eskom.

“There are a number of offers that are coming through, a number of funding and financing sources across the globe. When I was in Kenya, at the climate conference, we had conversations with multiple players who raised their hands and indicated that they are ready to finance grid expansion,” Ramokgopa said.

“We are going to host a transmission financing seminar [with potential funders] sometime during the month of September. We are aggregating everyone in one room. We want to understand what are the sizes of the facilities that are available, what are the conditions that are available, and what are the structures that, in the view of financing communities, will be acceptable for them to participate.

“The JSE as a partner is very important, because it is a renowned credible interlocutor… that can aggregate all of this interest. They have no interest but to ensure that SA succeeds.

“So we are hosting with the JSE there so that we have an appreciation of what are the broad flows of financing that is available.”

The seminar will also hear what the best practices were from countries that also had to deal with the same grid expansion issues.

Ramokgopa said that after the seminar, a report will be submitted to Cabinet.

“This submission must also respond to the fact that part of the conditions of the fiscal support [from Treasury] was that Eskom should not go out and [get a] loan.”

4. Social unrest warnings:

The government might have to cut back on spending for social services due to budget constraints, which could lead to social unrest and increased frustration with the status quo. 

This is according to economist and head of policy analysis at the Centre For Risk Analysis Chris Hattingh.

His comments come after the National Treasury recently announced that the state is facing a severe budget deficit and will have to introduce stringent cost-cutting measures.

In response to this situation, the National Treasury has proposed drastic steps to rein in spending as the government has run out of money and faces a debt trap.

The Sunday Times recently reported that the National Treasury has sent a letter to provinces asking for significant expenditure cutbacks. 

The measures include a freeze on new public service jobs, stopping procurement contracts for all infrastructure projects, and keeping public servant salary increases in check.

Hattingh told eNCA that the biggest risk of the budget shortfall is that the government will no longer be able to fulfil its role of being a “developmental state”.

In other words, the state will no longer be able to provide services like healthcare, education, basic infrastructure, and social grants.

“When your debt burden, as well as the interest on your debts, gets ever higher and higher, you then need to make some very pragmatic, difficult decisions in terms of your spending,” he said.

“And that, in turn, could mean a cut to services upon which so many South Africans depend.”

He warned that this could lead to increased social unrest and frustration with the current status quo.

Hatting said the government is being pulled in two different directions, as it faces a massive budget shortfall on the one side and an upcoming election year on the other.

5. Business struggling to stay afloat:

Small business owners in South Africa say they’re struggling to keep afloat following the recent fuel hikes, which makes running their alternative power utilities even more costly to keep their doors open.

Their businesses are also being battered by Eskom’s indefinite escalation to stage six power cuts.

Many are appealing for the government to come up with a plan to shield them from blackouts to help them keep their doors open.

All information sourced from articles posted by: Moneyweb, DailyInvestor, Fin24, BusinessTech, and eNCA.

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