Riveting Reading Material For Davis’s Tax Committee
22 October 2013
Posted by: Author: Hilary Joffe
Author: Hilary Joffe (Business Day)
It may not be everyone’s idea of a riveting bedside read, but the latest Tax Statistics bulletin has some interesting things to tell us about our economy and our society.
It is, naturally, also about tax. And though its 190 statistics-packed pages will no doubt be fascinating for tax folk, they should be of at least equal interest to those asking questions about what kind of tax system we need if we are to get the economy we want.
The annual publication, a joint venture between the South African Revenue Service (SARS) and the Treasury, is now in its sixth edition and gets better each year. Increasingly, the team is mining the data to highlight trends and point to questions for further research. So, for example, the numbers on personal income tax can tell us about income distribution and inequality, at least among those who have jobs and are on the tax register.
SARS notes a significant increase over the past four years in the number of individuals earning more than R100,000 a year, probably due to above-inflation wage settlements as well as upward social mobility. SARS and the Treasury have started a research project on social mobility.
The corporate tax figures provide similar insights, for example into the concentrated nature of the economy — evident in that 266 large companies (0.2% of companies with positive taxable income) pay 58% of corporate income tax. The sectoral trends are also striking — the financial sector is by far the largest contributor to the tax take overall, while mining is the most volatile, but more important to the fiscus than its share of the economy might suggest. SARS and the Treasury are also getting a better handle on the relationship between the economy and the tax take, with Monday’s presentation of the bulletin focusing on how tax revenue recovered (or not) after the 2008-09 recession.
All of which should provide rich material on which the Tax Review Committee, chaired by Judge Dennis Davis, can draw. The committee, set up in July by Finance Minister Pravin Gordhan, is meant to look at tax policy and its role in supporting growth, employment, development and fiscal sustainability.
Most in the market seem to see it as just another cunning ploy by the government to gouge more out of the taxpayer. But the review is not about raising money as such, but about the structure of the tax system and whether it works for us — in an economy that has changed beyond recognition since South Africa’s previous tax commission (the Katz Commission) sat 20 years ago.
Globalisation has everyone worrying about erosion of the tax base, as companies and high-income individuals become more mobile across borders. One of the committee’s immediate tasks is to deal with a request from the Organisation for Economic Co-operation and Development, which has asked its member countries to look at their tax bases and the way these are being eroded by corporate taxpayers.
Another priority is small and medium businesses, and whether the tax system can contribute to stimulating the development of that sector. The Davis committee has promised a report on this by the end of the year.
But if it is to do its job properly, it must tackle the issues of how and whether the tax system can do more to promote economic growth and job creation, at a time when South Africa’s "dual deficits" — current account and fiscal — have highlighted the need for structural reforms, which would make the economy less vulnerable to global craziness. One of the first items on the committee’s agenda is to devise a broad economic framework in which it can locate the questions about tax that it needs to address. Judge Davis says it plans to complete this by early next year.
Then it can presumably start zeroing in on the more detailed fiscal policy issues. One of the questions at the heart of policy must be how to find the balance between increasing government revenue by increasing tax rates and stimulating economic growth so that companies and individuals can earn more, and pay more in tax. It’s also about developmental objectives, such as creating jobs and reducing inequality, or promoting savings and investment and reducing excessive consumption, all of which would also ultimately help the revenue base.
So the committee will be looking at the more detailed fiscal issues of the optimal balance between direct and indirect taxes, whether user-pay systems (such as toll roads) are a good way to fund infrastructure, what are the appropriate tax incentives for a developmental state, what might help to shift spending from consumption to investment, and the like.
Nightmares for some but riveting for others — and definitely on the bedside table for the Davis team.
This article was first published on businessdaylive.co.za