SARS right to worry
26 March 2014
Posted by: Author: Michael Bagraim
Author: Michael Bagraim (BDlive)
The South African Revenue Service (SARS) is rightly concerned about the R365bn a year in tax revenue it is losing as multinational companies indulge in profit shifting (Developing countries ‘lose taxes to profit shifting’, March 19).
It’s a complex world and global companies have many options. A manufacturing company operating in South Africa, for instance, may realise that labour instability, constant strike threats and policy uncertainty make it unwise to look for profits in this country. It’s just too risky. So, instead, it decides to load the price of components or machinery it imports from low-tax countries and pays excessive royalties to a subsidiary in a tax haven.
Its investment in local factories is still put to good use but it makes sure that the profits are accumulated where SARS can’t touch them. So the country loses tax revenue that could pay for social grants or run hospitals.
This is just one of the likely consequences of our rigid labour laws and some of our other onerous anti-business legislation.
The only answer to the profit-shifting problem is to understand its causes — it is a logical result of overtaxation and companies feeling they are not getting value for the taxes they pay. Fix these two problems and there will be no need for profit shifting.
This article first appeared on bdlive.co.za.