Author: Amanda Visser (BDlive)
South Africa relies too heavily on personal income tax and on value added tax (VAT) in its overall tax mix. The tax system is “at full stretch”, and any further demands will distort economic activity and the behaviour of taxpayers.
These warnings were sounded by Chris Evans, professor at the school of taxation and business law at the Australian School of Business. He said the scope for extracting tax in South Africa has been “fully utilised”.
Only 338,724 of the nearly 6-million registered taxpayers reported taxable income of more than R500,000 in 2012, but carried the largest burden of personal income tax.
“You cannot squeeze more blood from this stone,” Prof Evans said at the annual TaxIndaba on Monday.
Prof Evans, who is also an extraordinary professor at the University of Pretoria, said the domestic economy was heavily reliant on personal income tax and VAT, with corporate income tax coming in third.
The reliance was far greater than in developed countries that belonged to the Organisation for Economic Co-operation and Development (OECD).
In South Africa personal income tax represented 34% of total tax revenue, compared to 24% for OECD members.
Corporate income tax made up 23% of total tax revenue in South Africa and only 9% in the OECD, while 27% came from VAT in South Africa and 20% in the OECD.
The South African Revenue Service was faced with low compliance in certain sectors.
It had to manage the increased complexity of tax laws, and had to deal with the unintended consequences of higher taxes on certain products, such as cigarettes.
The Davis Tax Committee was appointed by former finance minister Pravin Gordhan to examine whether the tax framework is “fit for purpose”. The committee has to ask whether the tax system contributes to growing the economy, creating jobs, eliminating tax avoidance, and addressing the challenges of the mining sector. It also has to assess the effect of tax incentives on developmental objectives.
Raymond Parsons, professor at North West University’s business school, said the global economy was growing at 3.6% and South Africa would be lucky if it grew 2% this year.
In the current business cycle a possible interest rate hike and talk of tax rate hikes was not a good formula for growth, Prof Parsons said.
South Africa’s tax structure should be weighted towards creating work, rewarding personal effort and encouraging entrepreneurship. “If we tinker with the tax system we must be careful that we do not go from the frying pan into the fire,” he said.
Tax was only one dimension of making the National Development Plan a success within the next 15 years. It was important that the committee’s recommendations did not undermine South Africa’s competitiveness, did not damage incentives to save and did not encourage capital flight, Prof Parsons said.