Briefing Paper for the Attention of the Minister of Finance Assignment Sample

Subject Name : Accounting & Finance

Introduction

The report highlights different sources of finance available for the Ministry of South Africa. The information will highlight various aspects of these sources and their advantages and disadvantages.

Discussion

In South Africa, there are many sources of revenue. Most of them are in the form of taxes and user revenues. These are as follows:-

Electricity
Water
Sewerage
Street cleaning
Fire services
Facility rental

A tax is a mandatory financial charge made by the Government that does not give the people who pay it any rewards or rights in return. Not only crimes are punished with fines and jail time. The main thing that differentiates taxes from other government fees is that the taxpayer and the governing body need an explicit agreement or exchange of benefits (Yang et al. 2019).

The fact that the local Government gets so little of the money collected by the central Government shows that it can make the most of its own money. The local Government is part of the Government that is closest to the people. The provincial Government's job is to provide essential services and facilities to households. The process of differentiation and other efforts are changing and reorganizing local Government in significant ways. The current system of regional Government is in a state of transition, and temporary laws govern it. The policy-related job has been finished and will soon be given to the Cabinet. The way money is given to local government groups must be changed to match the increased responsibilities and powers of the new provincial government structures. Also, these allocations should consider the growth of municipal infrastructure and the provision of necessary services to low-income households. As per Section 74 of the Act, it is mandatory for a city council to devise a tariff policy to levy fees on local services and subsequently implement the same (Green & Loualiche, 2021).

The provisions of Section 75A of the Local Government: Municipal Systems Act pertain to the broad competence of a municipality to impose and recover fees, charges, and taxes.

The text states that a local government has the authority to impose and receive payments, levies, rates, and interest on any outstanding balance for any service or operation the local Government provides.

There are different sources of borrowing available for the Government to increase funds. Instead of placing the entire financial burden on the people living in the present day during the project's development phase, the capital expenditures' costs are spread out across future generations so that they can enjoy the benefits of the subsequent service provisions. As stated in Section 230 of the Constitution, a province has the authority to create loans for capital and current expenses so long as they are in line with national legislation. However, loans for current expenditures are only allowed in situations in which they are necessary for transitional reasons within the same fiscal year. The central Government assumes responsibility for overseeing 34 national government offices and ensuring compliance with legally mandated payments. There exist certain exemptions to the act of covering, including the quarterly disclosure of data about extra-budgetary accounts and social security funds. The term "central government" refers exclusively to the national Government, which operates based on its revenue and expenditure. The available information pertains solely to identify the sources and destinations of cash (Green & Loualiche, 2021).

As the data is comprehensive, no unrecorded actions are observed. The GFS principles dictate that the examination of total income and expenses should be based on events close to the payment stage. This generates financial statements that track the inflow and outflow of funds. The temporal recording of transactions occurs at the moment of their occurrence, rather than during the budgetary period in which they were authorized. All critical data is recorded in a general manner. This enables the selective extraction of information to the desired location (Hedding et al. 2020).

In South Africa, the economy is run very informally, and there needs to be more money for statistical and tax offices to collect reliable data. Policymakers can't figure out what would happen if significant changes were made to how taxes are set up because they need more information. Due to this, small changes are often chosen over substantial changes, even though the significant changes are better. This makes it more likely that tax systems won't change to make them more efficient.

Section 152 of the Constitution says that a municipality can take on long-term debt only to buy land, plant, or equipment that will help the local Government reach its goals. On the other hand, long-term debt can be used to pay off existing long-term debt. The agencies give the most weight to their ability to do their jobs, which include paying the principal and interest on their loans. After making this kind of assessment, a credit rating agency will give a rating to the company in question. The rate shows how sure an agency is that the borrower will be able to pay its debts. Credit ratings give a general idea of the risks involved in giving money to the group being looked at. Credit ratings are a vital factor in whether or not the governments of emerging and developing countries can sell bonds to domestic and foreign buyers. Ratings from credit rating companies are a crucial part of how investors decide which investments to make.

The funds collected by the South African Revenue Service (SARS) are remitted to the central Government, which subsequently allocates a significant portion to the various provinces to finance critical sectors such as healthcare and education. The allocation of the national budget to each region is determined by the population size and poverty rate of the respective areas. The distribution of funds from the Federal Government to the local Government is contingent upon the number of individuals living in poverty within each respective municipality. The Financial and Fiscal Commission is an autonomous consultative body established by the Constitution. The formulas are generated to determine the allocation of funds to individual provinces or municipalities. In the event of an increase in income taxes by the Government, all employed individuals will be required to remit a higher amount of funds to the Government. Consequently, there will be a reduction in the available funds to cater to the necessities of households, leading to an increase in the financial burden on the Government to provide education, healthcare, and welfare benefits (Hedding et al. 2020).

Despite South Africa's market-based and thus flexible municipal borrowing system, few large amounts are borrowed. Since they have poor credit, financial institutions are hesitant to lend them money. The second factor is that many local governments lack the technical expertise necessary to undertake major infrastructure projects. They wouldn't be able to use the borrowed funds for infrastructure construction even if their credit were excellent enough to warrant a loan.

Unless otherwise specified by law, the Federal Government is responsible for allocating funds to state and municipal governments. Decentralizing responsibilities necessitates also spreading out financial support. However, the ease with which various forms of income can be taxed and collected at the state and municipal levels is an essential consideration. Various options exist for the selection of local tax instruments. The first five sets of considerations pertain to federal taxes, while the sixth group focuses on state and municipal levies. It takes political will to impose taxes, and that will be reduced if the tax is transparent to the people who pay it. In contrast to a demand for property taxes, a local tax on electricity may be "hidden" in the payment for energy. However, transparency is essential for accountability, as it informs residents about the uses of their tax dollars at the municipal level (Bushe, 2019).

Taxation is something that should be manageable for municipal administrations. Local governments typically lack the workforce and resources necessary to administer very complicated taxes (Green & Loualiche, 2021).

Conclusion

Local governments nevertheless need to offer services to government offices, places of worship, charities, and social institutions despite the fact that there may be different types of exemptions for low-value assets or government properties. Even while exempt areas may still require some local government services, the number of exemptions may increase. It is usual practice for central governments to establish tax rates and determine what entities must pay those rates. Some models allow for local governments to have some say in the introduction of new local levies. This is a major issue since new taxes may duplicate those of the Federal Government or local governments, may have a different impact on everyone, and may threaten the stability of the national budget. The municipal Government may have authority over taxation and exemptions. Again, there is an argument for consolidated taxation to ensure uniformity of taxation across the country. Due to variations in tax rates and exemptions between jurisdictions, taxable objects may relocate from one jurisdiction to another.

References

Yang, X., He, L., Xia, Y., & Chen, Y. (2019). Effect of government subsidies on renewable energy investments: The threshold effect. Energy Policy , 132 , 156-166.

Green, D., & Loualiche, E. (2021). State and local government employment in the COVID-19 crisis. Journal of Public Economics , 193 , 104321.

Mhlanga, D., & Moloi, T. (2020). COVID-19 and the digital transformation of education: What are we learning on 4IR in South Africa?. Education sciences , 10 (7), 180.

Bushe, B. (2019). The causes and impact of business failure among small to micro and medium enterprises in South Africa. Africa’s Public Service Delivery and Performance Review , 7 (1), 1-26.

Hedding, D. W., Greve, M., Breetzke, G. D., Nel, W., & Van Vuuren, B. J. (2020). COVID-19 and the academe in South Africa: Not business as usual. South African Journal of Science , 116 (7-8), 1-3.