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1% ‘graduate tax’ on the cards

16 November 2015   (0 Comments)
Posted by: Author: Banele Ginindza
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Author: Banele Ginindza (IOL)

The government has cast its revenue net wide in the aftermath of concessions made in the #feesmustfall campaign and an option being considered is for business to pay an additional 1 percent tax, which would be channelled exclusively to funding tertiary and university education.

Another consideration on the table, which is being discussed with banks, is for the government to act as a guarantor for educational loans to students not catered for by the National Students Financial Aid Scheme (NSFAS).

Business Report confirmed that the government, through the Presidential Task Team, is engaging various sectors of business to mobilise for sources of funding for three aspects of the higher education funding.

The immediate priority, sources said, was to cater for indebted students, whose results were being held back because they owed tuition fees.

This would close the gap for the "missing middle”, which are students denied sponsorship because their parents are perceived to be able to afford the fees.

A general programme, to secure long-term funding mechanisms for universities, was also needed. The task team is expected to submit a completed report by November 30.

Media liaison officer for the Department of Higher Education and Training, Khaye Nkwanyana, said business still had to be addressed about these initiatives.

Ringfenced

"We want to introduce an additional tax, maybe it will be called graduate tax, of 1 percent, which will be ringfenced and go to the Treasury to cater exclusively for training young people in university education. Training for higher education cannot be deducted from the current skills levy and the fiscus has no money for free higher education for the poor,” Nkwanyana said.

Investment analyst at ETM Analytics, Rob Price, said taxing companies was effectively taxing production, which was not a great place to put pressure on both tax and the economy and would shrink the tax pool. "There is only so much tax the government can extract out of companies,” he said.

The government needed to review its priorities on expenditure, he said.

Banking Association of South Africa managing director Cas Coovadia confirmed in an interview that it, along with NSFAS, was engaged with the government on the funding of higher education, but would not be drawn on specifics.

"At this moment, there are ongoing discussions between NSFAS, the government and the banks to see what role can be played and how we can actually work together to address this issue. Discussions are ongoing at the moment, when we are ready we will come out in public about them,” he said.

SA Chamber of Commerce and Industry spokeswoman Peggy Drodskie said business would not take the suggestion kindly, as they paid a 1 percent skills levy, which was supposed to upgrade and train people.

She said business was already doing a lot towards training, citing the example of one company that had volunteered to provide bursaries for 100 students per year for the next four years.

"Many companies are making contributions towards education that are not documented. For instance a lot of our members assist children of their employees with university and tertiary fees,” she said

Drodskie dismissed the notion that companies would be despondent and consider relocation because of the levy.

"This is one issue and I do not think it would be the trigger for disinvestment. There are other issues to be taken into consideration, such as the high levels of crime, skills availability and the labour regime. If the government came out officially about this, we would engage and make our input and try and find ways of helping the government to achieve its objectives,” she said.

A tax expert, who declined to be named, said in principle the basis of any levy varied.

One of this nature could be based on turnover, because if it were to be calculated on profits, it would unlikely reap much given the slowdown in economic conditions and the losses companies were sustaining in the circumstances.

"In simple maths, based on 2015/16 budget projections of corporate tax income of R202 billion, a 1 percent levy on companies based on profits is likely to raise in the ballpark of R5.5bn,” she said.

A precedent for this levy, she said, was the "transition levy”, which was imposed on companies at a rate of 5 percent of income above R50 000 and 1.67 percent for individuals post-1994 to fund the transition to democracy.

Chamber of Mines chief executive Roger Baxter said he was aware that the government was looking at various options to fund higher education, but that a formal approach had not yet been made. He said businesses under the chamber were already doing a lot to help fund higher education and were spending about R5bn a year on skills development, as well as sponsoring a large number of students.

Additional strain

"We need to reflect on what mining is already doing, which is substantial, not small at all. We must be careful about placing an additional strain on business: an additional tax would be a huge strain, raising taxes would actually not help,” Baxter said.

According to the latest tax statistics bulletin from the National Treasury and the SA Revenue Services (Sars), corporate income tax (CIT) was the third largest contributor to total revenue for 2014/15, totalling R186.6bn, or 18.9 percent, of government revenue.

Of the total number of companies assessed by SARS for the 2013 tax year, 113 926 were Small Business Corporations and paid tax at the applicable graduated income tax rate instead of a fixed CIT rate of 28 percent.

NSFAS spokesman Kagisho Mamabolo’s only response was that NSFAS board chairman Sizwe Nxasana was part of the Presidential Task Team that was currently exploring solutions to student funding challenges.

Treasury spokesperson Phumza Macanda said all that could be said for now was that the government had made a commitment to a zero percent increase for next year and was currently looking at options of how that would be funded.

"The process is not yet complete, so it would be premature to comment, but there are various options on the table I’m not at liberty to discuss,” she said.

This article first appeared on iol.co.za.


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