Government did not say ‘find more money’ — Davis
19 July 2013
Posted by: Author: Linda Ensor
Author: Linda Ensor (BusinessDay)
Chairman of the newly appointed tax review committee Judge Dennis Davis has rejected the suggestion that the committee’s role is to find out how the government can collect more money from taxpayers.
He insisted in an interview on Thursday that the committee would be independent and it would be up to the government and the African National Congress (ANC) to accept or reject its tax recommendations which would be underpinned by three cardinal rules, namely efficiency, equity and certainty.
Judge Davis emphasised the need for South Africa’s tax system to take account of the desperate needs and constitutional rights of millions of its destitute citizens.
PwC international tax services partner Osman Mollagee also said that "the overall objective of questioning whether tax policy and the tax system is aligned with the broader economic objectives is entirely appropriate".
Finance Minister Pravin Gordhan announced the members of the committee and its terms of reference this week in a climate of growing political and economic pressure for higher taxes.
The ANC resolved at its national electoral conference in Mangaung in December that the mining sector should make a bigger contribution to tax revenue.
Mr Gordhan also warned in his budget speech in February that taxes might have to be raised if the projected economic growth rate did not materialise and if tax revenue declined as a result. Economic trends suggest that this might well become necessary.
But Judge Davis did not see these imperatives as directly determining the committee’s mandate. With regard to the mining industry, he said the committee’s carefully crafted terms of reference stated that it should look at whether the mining tax regime was appropriate.
It would have to ensure the mining sector contributed to growth and job creation but also that it remained a competitive investment proposition, he said.
In this regard it would have to consider "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".
The inquiry also had to be seen in an international context where national tax systems were under "terrible pressure" because of recession and the state of the global economy.
"I certainly don’t read my terms of reference as the minister or the government saying to us — either expressly or by implication — ‘find us more money’.
"I think what they are saying is that there are some very significant issues which government has to achieve in order to fulfil SA’s constitutional objectives.
"That raises a number of questions, such as whether we are raising enough money and if we raise more, would we jeopardise economic growth and therefore be counterproductive."
It was vital for the tax system to be aligned with new developments such as the growth in e-commerce and income splitting by multinational companies.
The judge did not expect the project to take longer than 18-24 months and has agreed to submit a report on the taxation of small and medium-sized businesses by the end of the year.
Drawing from his experience on the Katz commission of inquiry into tax matters, Judge Davis expected that much of the work would be done by subcommittees which would draw on outside expertise in the specialised subjects and hold public discussions.
This would address a reservation that there was no representation of tax professionals on the committee. Judge Davis also agreed with Prof Mollagee that the complexity of tax law needed to be addressed.