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News & Press: Opinion

Route to growth lies in tax cuts

07 January 2013   (0 Comments)
Posted by: SAIT Technical
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By Stephen Mullholland (Business Day)

Executive summary

Stephen Mullholland discusses the effects of raising taxes.1.4-million people were responsible for paying 82% of all personal income tax.It is estimated that there are 21-million recipients of social welfare to be paid by the Social Security Agency. It has been estimated that middle-to upper-income South African taxpayers receive between 5% and 10% back for their taxes, among the worst rate in the world.

Full article

AN old axiom tells us that if we want less of something, then we should tax it.

Thus, we tax substances such as alcohol and tobacco because they are not good for us and we wish people to use less of them. Today there are all sorts of environmental taxes aimed at discouraging folks from despoiling our environment.

There are arguments that it would be logical to legalise prostitution and certain recreational drugs but then tax them heavily. Such tax burdens may reduce demand, bring these activities into the light of day and make controls and treatment of abuse easier.

However, our tax authorities are not strong on logic. For example, what we desperately need in this country is capital investment. Yet they introduce a capital gains tax and, as with most such imposts, it is regularly increased.

Capital gains flow directly from successful investing — at risk — which creates wealth and, along the way, jobs and careers and medical aid benefits and annual holidays and company cars and pension benefits and so on and so forth.

If ever a country did not need a tax that discouraged capital formation, then it is this one. But our government’s appetite knows no bounds. It would be a little more bearable if our taxes were wisely and productively employed.

But, as all but the most slavish of African National Congress loyalists are acutely aware, what taxpayers get for their taxes is laughable. What is not stolen is squandered or disappears due to endemic incompetence.

And a tiny slice of the population is asked to shoulder an ever-increasing burden. Paul Joubert of the Solidarity Research Institute says 2010-2011 tax data reveal that 1.4-million people were responsible for paying 82% of all personal income tax.

It is estimated that there are 21-million recipients of social welfare to be paid by the Social Security Agency.

Those 1.4-million citizens (2.8% of the population) who bear the burden of paying social benefits to 21-million (42% of the population) can expect their contributions to continue to grow, given that the Treasury estimates of future revenue are based on growth rates of some 4.5%, which will just not be achieved.

Our ruling elite appear not to grasp that dependency is itself a drug. The more the state provides, the more the dependent expect.

It has been estimated that middle-to upper-income South African taxpayers receive between 5% and 10% back for their taxes, among the worst rate in the world. The bulk of taxpayers, in turn a small slice of society, receive zero or very little assistance for education; none for health; need to employ 412,000 private security guards (there are 194,000 in the police force); and must contend with an arrogant and uncooperative civil service.

They might profit from reflecting on what the late, great John F Kennedy said: "It is a paradoxical truth that the soundest way to raise the revenue in the long run is to cut the [tax] rates now ... an economy hampered by restrictive tax rates will never produce enough revenue to balance our budget, just as it will never produce enough jobs or profits."

JFK lost his bid to cut taxes 20% but his successor, Lyndon B Johnson, succeeded. The result? Higher growth, lower inflation, lower unemployment and increased tax revenues. Ronald Reagan emulated LBJ with similar results.

But, heck, who can teach the ANC anything?




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