Tax: No need to panic
24 March 2016
Posted by: Author: Claire Bisseker
Author: Claire Bisseker (Financial Mail)
Judge Dennis Davis, who heads the Davis Tax Committee, believes that despite slow economic growth, SA will meet its revenue targets next year without any significant tax increases.
Davis’s comments, made in an exclusive interview with the Financial Mail, should bolster the credibility of national treasury’s fiscal consolidation plans at a time when Moody’s is considering downgrading SA’s sovereign credit rating.
His optimism stems mainly from his estimate that the new tax amnesty announced in the 2016 budget will raise R6bn-R10bn or even more within the next 12 months.
The 2003 tax amnesty raised R6bn but Davis is convinced that "the big money never took this amnesty” and that, a decade later, there is even more SA money slushing around offshore unaccounted for.
Under the new special voluntary disclosure programme, noncompliant taxpayers will have six months from October 1 2016 to disclose offshore assets and income and pay the required taxes and levies.
Davis expects taxpayers to grab this opportunity to regularise their affairs before a new global standard for the automatic exchange of information between tax authorities kicks in next year.
Under these agreements, banks in other countries will not be able to hold the money of a South African unless that person or company can show that the SA Revenue Service (SARS) is aware of the funds.
Davis expects the amnesty funds to flow into the tax net during the 2017/2018 fiscal year, going a long way to meeting the R15bn additional revenue requirement budgeted for in that year (see graph).
"It means treasury’s revenue projections for next year are pretty bankable without any significant tax increases at all,” says Davis. "Even with a tepid growth rate, I’m reasonably confident that we will be able to meet them. So we should get a tick in our favour for this from the rating agencies.”
His provisos are that SARS makes the administration of the amnesty as efficient as possible and devotes extra resources to tackling transfer pricing. The latter occurs when companies manipulate the value or nature of cross-border transactions to reduce their overall tax liability.
The Davis Tax Committee’s recommendations have resulted in government strengthening the information required from multinational companies in order for SARS to obtain a better picture of their international capital flows.
"We probably need three times as many highly qualified people in this area,” says Davis, adding that SARS commissioner Tom Moyane has promised to beef up this unit.
On the breakdown of the relationship between finance minister Pravin Gordhan and Moyane, Davis says: "The committee is loath to intervene in matters which are politically laden unless we are asked to do so.”
On the other hand, there is public concern over the fact that Moyane has taken the view that he’s not accountable to the minister.
"Obviously we want SARS to be independent but it’s a perfectly legitimate question for us to ask whether we’ve got the right level of accountability at SARS, because if you have a finance minister and a commissioner of SARS with competing interpretations of the law then wise counsel needs to prevail.”
He says Gordhan is happy for the committee to look at three specific things.
First, whether the SARS model put in place by the Katz Commission (SA’s last tax advisory committee appointed in 1996) is still applicable 20 years later. This model allows the president and not the finance minister to appoint the SARS commissioner.
Second, whether SARS is sufficiently accountable and to whom.
And third, whether the present SARS infrastructure is sufficient to implement the recommendations the DTC is making, especially with regard to international transfer pricing and the pursuit of high net worth individuals.
This article first appeared on financialmail.co.za.