Taxation working well but can be more efficient, says Judge Dennis Davis

withholding taxAuthor: Amanda Visser (BDlive)

South Africa was performing far better than any of the other developing countries that formed part of a recent World Bank study, it said.

However, the country would experience “extraordinary instability” without social spending by the government and unless the system was made more efficient, said committee chairman Judge Dennis Davis. He said the committee was not looking for more money, but wanted to ensure the system worked at optimal levels.

He suggested the super-wealthy were going to have to “contribute more” than they did.

Judge Davis told the annual Tax Indaba of the South African Institute of Tax Professionals there was little room to increase personal income tax or corporate income tax.

The obvious place to look for more tax income was value added tax (VAT), he said.

The committee has commissioned the World Bank to determine the gap between the amount of VAT the South African Revenue Service is collecting and the amount it ought to collect. If this could be reduced, it might not be necessary to change anything, Judge Davis said.

His discussions with World Bank economists suggested South Africa needed a tax to gross domestic product ratio of close to 30% — and not the 19% or 20% for which some commentators had asked.

Michael D’Ascenzo, a former commissioner of taxation of the Australian Tax Office, said it was clear that the South African tax system was at a crossroads. He said the Davis committee would have to address the tension of having a tax system that brought in enough revenue for the government to achieve its objectives, while also providing a competitive environment for companies to grow.

“Tax is not going to be the solution in itself, whether it is to solve the problems in Australia or in South Africa.

“It is only one part of a bigger picture, and having an economy that is growing and creating jobs is going to be the solution for both countries,” he said.

Stiaan Klue, CEO of the South African Institute for Tax Professionals, said a tremendous amount was expected from the outcome of the committee’s work.

“The acceptance of some of the recommendations by the committee could depend on the way it fits with the thinking within the government,” he said.

The National Development Plan is the foundation on which the committee is based. Its recommendations, especially those about small and medium-sized enterprises, would have to be considered in that context, Mr Klue said.