South Africa Withdraws $1.25 Billion Tax Break, May Cut Deficit

The withdrawal of a tax proposal that would have saved South African taxpayers about 15 billion rand ($1.25 billion) may lead to slight narrowing of the budget deficit.

The proposal to reduce the threshold against which contributions to the nation’s Unemployment Insurance Fund are calculated won’t be implemented as it could lead to “unintended consequences,” the Pretoria-based Finance Ministry said in an e-mailed statement on Thursday.

The decision removes a concession to taxpayers in a budget that raised the personal income tax rate for the first time in more than two decades. Finance Minister Nhlanhla Nene announced in February that contributions to the fund will effectively be capped at 10 rand a month for one year.

The withdrawal of the proposal “will not affect other budget proposals or the main budget deficit, but will somewhat reduce the projected consolidated deficit for the current financial year,” the ministry said.

The February budget projected South Africa’s budget deficit will reach 162.2 billion rand, or 3.9 percent of gross domestic product, in the year through March 2016.

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