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Business warns of dangers in tax system

29 January 2014   (0 Comments)
Posted by: Author: Amanda Visser
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Author:  Amanda Visser (BDlive)

Business Unity South Africa (Busa) has warned against "significant dangers" of actively using the tax system to achieve narrowly targeted outcomes that may impose administration and compliance costs and create arbitrage opportunities.

The latter is when, for example, the difference between individual and company tax rates is exploited.

In its submission to the Davis tax committee this month, Busa also warned of the risk of failing to acknowledge that the tax system is not necessarily the only, or even the best, policy instrument available to the authorities.

The Davis tax committee, headed by Judge Dennis Davis, was appointed by Finance Minister Pravin Gordhan last year.

It is mandated to inquire into the role of the tax system in promoting economic growth, job creation, and fiscal sustainability.

Busa said in its submission on January 13 that it believed a comprehensive redrafting of tax legislation might be needed in accordance with the objectives of the National Development Plan, given the "dramatic changes in both the domestic and international economic environments".

The Davis tax committee will look at the overall tax base, including the appropriate tax mix between direct, indirect, provincial and local taxes.

It will also consider the effect of the tax system on small and medium-sized businesses and will consider whether the mining tax regime is appropriate.

The VAT system and its efficiency and equity will also be reviewed, with the effect of e-commerce on the integrity of the tax base. The committee’s brief will include reviewing the role and relevance of estate duty and the interaction between estate duty and capital gains tax.

The committee has already submitted a small-business interim report to the minister of finance.

Busa has suggested that a tax to gross domestic product (GDP) ratio of 19% rather than the present 24.5% would optimise South Africa’s economic growth rate. However, it proposed that the committee consider that a benchmark tax-to-GDP ratio would be "somewhat meaningless" in the context of growth, unless it also takes account of how government funds are allocated and how efficiently they are spent.

This article first appeared on bdlive.co.za.



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