Emerging countries warned of consequences of proposals to hike taxes

JOHANNESBURG - Leading voices in the global economy have warned emerging countries of proposals to hike taxes as developing nations look to bolster revenue.

Faced with high spending and a shortfall in government’s revenue, some countries have been left with widening fiscal deficits and runaway debt.

This includes South Africa, where the macroeconomic landscape is further complicated by low growth, especially after the COVID shock.

Fiscal policy and monetary policy were on the agenda on Wednesday, when global leaders at the G20 finance ministers and central bank governors' meeting met for day one.

Part of the ongoing G20 meetings include plans to address the tough fiscal space that a lot of countries find themselves in.

Strengthening tax administration is one of the key proposals made so far to help ease the pressure on treasury.

SARS Commissioner Edward Kieswetter said this means tax collectors, globally, need to boost collection capacity, especially where tax evasion and illicit money flows are involved.

"In terms of raising taxes, we understand and understand that it will always be a consideration for ministers of finance but it’s not a free call – every time there are consequences. So, removing money from the economy means you are stifling growth in economic development and even in the tax base and ultimately, it’s the goose that provides the eggs."

The warning follows the unprecendented postponement of the Budget Speech last week over political disputes in the Government of National Unity (GNU) over a proposal to hike VAT by 2 percentage points.

Officials from Washington-based lender, the IMF, made similar comments during an event on the sideline of the G20 meetings.

The IMF's managing director, Kristalina Georgieva, said that the ability to spend tax revenues effectively was as equally important as collecting tax revenues.

"Quality of public spending matters, not only for the wellbeing of the economy. It matters for creating public support among businesses and households for the need to contribute to the public purse. And let’s admit here that there is a lot of work to do in that area.

"Today, the public appetite [for tax hikes] is at historical lows and yet it is paramount to acknowledge and use the significant potential in developing countries to improve that capacity, enhance revenue mobilisation and strengthen the efficiency and use of these resources."

More broadly, global leaders gathered in Cape Town hope tax reforms will be implemented speedily.

Delegates in the finance track and central bank governors will wrap up their meeting on Thursday.