South Africa’s tax base in serious trouble

South Africa’s National Treasury is worried that the US’s proposed 30% tariff could hit tax revenues and is modeling the impact it may have on the nation’s budget.

Ahead of October’s medium-term budget policy statement, the Treasury is assessing the impact of the proposed tariff on its economic growth projections that have already been significantly revised down, Deputy Finance Minister David Masondo told Bloomberg in an interview on Tuesday.

Africa’s largest economy was among a wave of countries to receive a letter from the US threatening higher tariff rates by 1 August unless it cuts a deal.

The proposed duties, if implemented, will not only impact its exports to the US but also to other trading partners like China and Europe, as the tariffs will likely weigh on growth and raise the cost of doing business, Masondo said.

It may also have repercussions for major US companies operating in South Africa, such as Ford Motor Co., which export to their home country, he said.

“If you are imposing tariffs on such a company, you are not only harming the South African economy, but also the American economy in many respects.”

The tariffs are also expected to erode South Africa’s tax base as the economy depends on growth to increase revenues, Masondo said. 

Still, he is optimistic that a deal with the US can be reached to lower the tariffs. “The government of South Africa will continue to engage the US for a revised trade deal ahead of 1 August.”