The President announced that the Minister will convene a commission to examine tax policy, including mining tax policy, sometime this year. This is long overdue and the question is – in stimulating the South African economy, what is our tax policy (besides annually passing complex unmanageable anti-avoidance legislation)?
Is the medium to long-term objective to lower tax rates across the board? Is it the introduction of sustainable tax incentives? Does it involve the introduction of special economic zones? What we have seen over the past several years are knee jerk reactions to plug perceived tax loopholes, where tax incentives introduced to stimulate the economy are followed with overly complex anti-avoidance provisions, which virtually kill the attractiveness of the incentive.
The Minister said in his Medium Term Budget Speech in October 2012 that Government needs to repair dysfunctional municipalities, restore confidence, reinforce expenditure discipline, improve the quality of spending, find savings, eliminate waste and re-prioritise spending. The Minister said “There are lessons to be learnt, mistakes to be acknowledged and corrective steps to be taken by all… it is time for action.”
As a start, a concerted analysis must be undertaken and the blockages identified preventing economic growth and job creation in South Africa, without any apportioning of blame and finger-pointing. An honest and frank conversation must be embarked upon between Government, Labour and Business. Identify what factors adversely affect our country as a suitable foreign investor destination and set out a medium to long-term plan to redress them. That plan must have a method of monitoring progress and appraisal.
An overall economic strategy and policy should be set and tax policy must be identified to support that economic vision. A basic step should include increasing the skills base of SARS personnel at their different offices through improved and sustainable training, where any perceived tax abuse may be effectively and timeously nipped in the bud. The ever increasing complexity in our tax is making it unmanageable from both sides of the fence. We require less complex legislation and more effective timeous policing without unreasonable treatment by SARS of taxpayers.
- Emphasis again on tax compliance and anti-avoidance (including regular audits of the “wealthy”);
- Further exhortation of taxpayers to do the right thing (notwithstanding the Fiscus gradually losing the moral high ground in the light of ongoing inefficient and wasteful State expenditure);
- Relief for the lower end taxpayers – none for the “wealthy”;
- Hopefully no increase in marginal tax rates, the maximum marginal rate for individuals exceeds that of other African countries e.g. Nigeria (25%), Kenya (30%), Botswana (25%), Egypt (25%), Ghana (25%), Malawi (30%), Mauritius (15%);
- No expected increase in VAT (perhaps a dual rate of VAT with an increased VAT rate for “luxury” goods (not ideal as this will increase the administrative burden on taxpayers);
- The announcement of the parameters of the commission to review the South African tax system, including mining tax;
- Expect a report on progress achieved by the Jobs Fund;
- Proposals to stimulate foreign direct investment ;
- An increase in corporate tax rates;
- The obligatory increase in “Sin” taxes.
- Less tinkering and more medium to long-term planning, in line with an identified sustainable economic vision;
- Convene a working and monitoring group to identify and address the economic growth blockages (involving an honest, frank evaluation of where the South African economy finds itself – no finger pointing and resorting to a blame game);
- South Africa to put up an “Open for business” sign and introduce a concerted effort to attract foreign direct investment e.g introduction of special economic zones;
- Concrete measures to introduce greater accountability in combating corruption and inefficiency;
- Clarification on mining tax policy and the so-called “mineral resources nationalism” concept.
Ernie Lai King – Edward Nathan Sonnebergs