Terms Of Reference For The South African Tax Review Committee
18 July 2013
Posted by: Author: Ministry of Finance
Author: Ministry of Finance
of Finance announced in the 2013 Budget that-
review will be initiated this year to assess our tax policy framework and its
role in supporting the objectives of inclusive growth, employment, development
and fiscal sustainability…”
providing further details, this Terms of Reference draws from announcements
already made in the 2013 Budget Review (BR).
1. Composition Committee
Dennis Davis will chair the committee. The other members are: Prof.
Annet Wanyana Oguttu, Prof Matthew Lester, Prof Ingrid Woolard, Ms. Nara
Monkam, Ms. Tania Ajam, Prof N Padia and Mr Vuyo Jack. Two officials, one from
the National Treasury, Mr. Cecil Morden, and one from the South African Revenue
Service, Mr. Kosie Louw, will serve as ex-officio members in a technical, supportive
and advisory capacity. In addition the National Treasury and SARS will provide
secretarial support to the Committee and SARS will provide office accommodation
and logistical support to the Committee.
2. Terms of Reference
terms of reference for the Tax Review Committee are to inquire into the role of
the tax system in the promotion of inclusive economic growth, employment creation,
development and fiscal sustainability. The committee will take into account
recent domestic and international developments and, particularly, the long term
objectives of the National Development Plan.
Committee is advisory in nature, and will make recommendations to the Minister
of Finance. The Minister will take into account the report and recommendations
and will make any appropriate announcements as part of the normal budget and
legislative processes. As with all tax policy proposals, these will be subject
to the normal consultative processes and Parliamentary oversight once announced
by the Minister.
committee should evaluate the South African tax system against internationally
accepted tax trends, principles and practices, as well as recent international
initiatives to improve tax compliance and deal with problems of base erosion.
following aspects should receive specific attention from the committee:
1) An examination of the overall tax base
and tax burden including the appropriate tax mix between: direct taxes,
indirect taxes, provincial and local taxes. An analysis of the sustainability
in the long-run of the overall tax-to-GDP ratio, and the tax-to-GDP ratio for
each of the three major tax instruments, personal income tax (PIT), corporate
income tax (CIT) and VAT should be undertaken. This in essence requires an evaluation
of the economic and social impact of the tax system and an assessment of
whether the current tax structure is able to generate sufficient and
sustainable revenues to fund government’s current and future expenditure
2) The impact of the tax system in the
promotion of small and medium size businesses. An analysis of tax compliance
costs, the possible further streamlining of tax administration and
simplification of tax legislation.
3) A review of the corporate tax system
with special reference to:
a. the efficiency of the corporate income
b. tax avoidance (e.g. base erosion,
income splitting and profit shifting, including the tax bias in favour of debt
c. tax incentives to promote developmental
d. average (and marginal) effective
corporate income tax rates in the various sectors of the economy.
4) As noted in the 2013 Budget Review, the
committee will consider
a) Whether the current mining tax regime is appropriate,
taking account of:
agreement between Government, Labour and Business to ensure that the mining
sector contributes to growth and job creation,
remains a competitive investment proposition, and all role players
contribute to better working and living conditions;
ii)the challenges facing the mining
sector, including low commodity prices, rising costs, falling outputs and
declining margins, as well as to its current contribution to tax revenues.
b) Various elements of taxation within the
financial sector, namely the taxation regime of long term insurers (BR, page
55), the taxation of hedge funds (BR, page 56), the taxation of various
innovative financial instruments (BR, page 63), and the VAT treatment of
financial services and VAT apportionment within the financial sector (BR, page
5) Value added tax with specific reference
to efficiency and equity. In this
examination, the advisability and effectiveness of dual rates, zero rating and
exemptions must be considered.
6) The impact of e-commerce (especially the
use of digital delivery of goods and services) upon the integrity of the tax
base, in particular upon value added tax and corporate income tax revenues.
7) The progressivity of the tax system and
the role and continued relevance of estate duty to support a more equitable and
progressive tax system. In this inquiry,
the interaction between capital gains tax and the estate duty should be
8) An evaluation of proposals to fund, for
example, the proposed National Health Insurance (NHI) and long term
infrastructure projects to boost the growth potential of this economy.
9) An evaluation of the legislative process
with a view to both enhancing simplicity and ensuring the protection of the tax
base and to recommend how to improve the current process.
Committee is mandated to study any further tax issues which, in the Committee’s
view, should be addressed in order to promote inclusive economic growth,
employment creation, development and fiscal sustainability. The Committee is
required to submit interim reports and a final report which will be published on
dates to be determined after consultation between the Committee and the
Minister of Finance.
3. Objectives of South African tax
committee should take into account the following broad tax policy objectives:
a) Revenue-raising to fund government expenditure
is the primary objective of taxation
b) Social objectives, building a cohesive
and inclusive society can be met partially through a progressive tax system and
by raising revenue in order to redistribute resources.
c) Market failures can be corrected by
applying a tax on production and/or consumption to internalise negative
externalities, e.g. pollution or consumption of harmful products.
d) The tax system can influence
behavioural changes by encouraging certain actions (e.g. savings) and
discouraging others (e.g. smoking).
e) Taxes and tax incentives are sometimes
used in targeted ways to encourage higher levels of investment to help facilitate
competitiveness is important, although the tax system is not the main driver of
international competiveness. Innovation and productivity improvements are far
more important. We should guard against the ‘race to the bottom’ in our efforts
to strive for a "competitive tax system”.
4. Background to the Review
the last tax commission (The Katz Commission), South Africa’s tax system and
tax administration have undergone significant changes. An independent tax
administration, the broadening of the tax base and the lowering of marginal tax
rates have all contributed towards a relatively robust and competitive tax
system. Today South Africa’s tax policy and tax administration compares
favourably with that in many developed and emerging economies.
the pace of globalisation, the relatively modest economic growth following the
2008/09 economic recession and significant social challenges such as persistent
unemployment, poverty and inequality, there is a need to review the
contribution of the tax system (as part of an coherent and effective fiscal
policy framework) in order to address these challenges in the future. There is
also a need to address concerns about base erosion and profit shifting,
especially in the context of corporate income tax, as identified by the OECD