Gordhan Launches Major Tax Review
22 July 2013
Posted by: Author: Rene Vollgraaff
Author: Rene Volgraaff (BusinessDay)
The National Treasury this week took another step to limit the leakage of money from the tax system by introducing a new tax review committee.
The eight-person committee, composed mainly of academics and headed by retired judge Dennis Davis, was announced by Finance Minister Pravin Gordhan on Wednesday.
It will "inquire into the role of the tax system in the promotion of inclusive economic growth, employment creation, development and fiscal sustainability”.
Its mandate includes examining the overall tax base and burden, the corporate tax system and the mining tax regime.
Mr Gordhan said there was also a need to address concerns about base erosion and profit shifting. This was mentioned in the February budget review, shortly after the Organisation for Economic Cooperation and Development (OECD) and the G20 published a study that found some multinationals use strategies that allow them to pay as little as 5% in corporate taxes.
The OECD’s secretary-general, Angel Gurría, presented the organisation’s plan to tackle corporate tax avoidance in Moscow on Friday. It identifies 15 specific actions that will give governments the domestic and international instruments to prevent corporations from paying little or no taxes.
"This action plan, which we will roll out over the coming two years ... will allow countries to draw up the coordinated, comprehensive and transparent standards they need to prevent base erosion and profit shifting,” said Ms Gurría.
Earlier in the week, tax experts from Deloitte said any developments regarding base erosion and profit shifting were of special significance for businesses operating in South Africa.
Base erosion and profit shifting is usually not illegal, but happens when businesses use inconsistencies in tax laws to shift profits from the location where a business activity is taking place to locations where the tax regime is more favourable. This has led to debate on whether big companies are paying their fair share of taxes.
Heinz-Klaus Kroppen, international transfer-pricing expert at Deloitte, said people who did not pay the taxes they owed were criminals who should be prosecuted.
With base erosion and profit shifting, businesses were mostly acting within the law and taking advantage of inconsistencies in the tax laws of various countries, but this was not illegal behaviour, Mr Kroppen said.
"The problem is: who is really to blame? The company which is under the obligation to optimise its situation because its shareholders require it? Or is it rather the countries which allow these inconsistencies to happen?” Mr Kroppen said some of the countries involved in the discussions about base erosion and profit shifting were hypocrites; they criticised base erosion and profit shifting, but at the same time attracted investment from foreign companies by giving them tax incentives.
Andrew Wellsted, tax director at Norton Rose Fulbright, said tax-base erosion was a concern worldwide and had been a key theme in South African budgets and tax-law amendments over the last four to five years.
"From the perspective of the overall tax base and tax burden and reducing tax-base erosion, I am glad that a committee will study it and make recommendations. Hopefully we will then have a consolidated approach to all types of avoidance schemes and base erosion. At present it is coming in thick and fast and on a bit of an ad hoc basis.”
Piet Nel, the South African Institute of Chartered Accountants’ project director for tax, said the tax review could lead to simplified taxes.
"In South Africa, we have so many taxes in various sectors; hence we are hopeful that the committee will evaluate some of these complex taxes,” he said.
Nazrien Kader, head of tax at Deloitte Southern Africa, said she would have liked to have seen some tax practitioners on the committee.
"There are so many big firms. We could have put a committee together if that is what the government asked. We would have been very willing and able because it is in all our interests to make sure that our legislation is accommodating of tax policy in the wider sense and takes into account practical issues.”