Corporate Tax Slump Lingers After 2008 Global Crisis
22 October 2013
Posted by: Author: Linda Ensor & Amanda Visser
Author: Linda Ensor & Amanda Visser (Business Day)
Corporate income tax has not recovered from the sharp decline brought about by the global financial crisis that started late in 2008, statistics released by the Treasury and the South African Revenue Service (SARS) on Monday reveal.
The Tax Statistics 2013 report provides a detailed breakdown of the performance of the various categories of tax. The changes in the tax base highlight the devastating impact of the crisis on tax revenue.
For example, the proportion of corporate income tax collections to gross domestic product (GDP) declined from its peak of 7.2% in 2008-09 to 4.9% in 2012-13. As a contribution to total tax revenue, corporate income tax fell from 26.7% to 19.8% over the period.
"The 2008-09 recession caused a significant contraction in company profits, causing corporate income tax to slump severely," SARS group executive for revenue analysis Randall Carollissen said.
For example, the contribution of the mining industry before the crisis was R16bn but fell to only R3.7bn in 2012-13, constraining the recovery of the corporate income tax contribution.
Personal income tax took up much of the slack, establishing a new post-recession trend that SARS expects will persist because of the large assessed losses that large companies accumulated during the recession. The contribution of personal income tax increased from 31.4% of the total in the 2008-09 tax year to 34% in 2012-13.
The value of assessed losses greater than R10m increased dramatically by more than 50% to R300m in the aftermath of the recession. The number of large companies with assessed losses rose 50% to about 225,000 over the period.
The value of assessed losses by small companies (with amounts up to R10m) increased about 30%, from about R75bn in 2008 to R100bn in 2011, while the number of smaller companies with assessed losses rose to about 200,000.
Corporate income tax continued to remain below precrisis levels, Mr Carollissen said. Weaker consumption meant that VAT also slumped during the recession and recovery had been muted because consumer confidence remained cautious.
Further, customs duties were severely affected as the collapse of world trade resulted in a dramatic decline in import taxes. But robust demand for imports resulted in a strong recovery after the recession.
The ratio of tax to GDP rose marginally, from 25% in the 2011-12 tax year to 25.3% in 2012-13.
This article was first published on businessdaylive.co.za