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Grant Thornton IBR research also reveals South Africa’s “golden goose” still being taxed too heavily

Thursday, 03 April 2014   (0 Comments)
Posted by: Author: Nyasha Musviba
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Author: Nyasha Musviba

New research from the Grant Thornton International Business Report (IBR) reveals that 64% of South African business leaders would welcome more global co-operation and guidance from tax authorities on what is acceptable and unacceptable tax planning, even if this provided less opportunity to reduce tax liabilities across borders.

This figure is in line with BRIC business leader responses (68%) while globally 53% of executives surveyed would also welcome greater global co-operation.

The IBR provides unique insight into the views and expectations of senior business executives around the world.   Grant Thornton’s survey specifically relating to Tax Planning researched 3,500 chief executive officers, managing directors, chairmen or other senior executives globally from all industry sectors between November and December 2013.

Grant Thornton Johannesburg’s Tax Services Partner, AJ Jansen van Nieuwenhuizen, says: "Providing greater certainty around transfer pricing has been high on the global agenda for some time now and it was also a key topic at Davos this year.”

Nearly a year ago, the levels of corporation tax which multinationals like Amazon, Apple, Google and Starbucks are paying hit the headlines worldwide, sparking outrage and a global calling for more clarity and transparency.

Jansen van Nieuwenhuizen notes that a number of exercises are underway to establish greater transparency and clarity. The Organisation for Economic Co-operation and Development (OECD), for example, has been given a mandate by the G20 economies to prevent tax base erosion and profit shifting (BEPS) through reform at the global level.

When executives were asked to define South Africa’s tax laws and policies, the IBR reveals that an overwhelming majority – 79% – see SA’s tax system as "one which encourages tax compliance”.

Jansen van Nieuwenhuizen says that these responses are exactly aligned to the current situation in SA.

"As a nation we are renowned for complying with regulation,” he says.  "Our number one position in the World Economic Forum’s annual global competitiveness survey for Auditing and Reporting standards, as well as our leading financial reporting overall, bears testament to this.”

But Jansen van Nieuwenhuizen laments the tax burden on a small minority of tax payers in SA – also known as the "golden goose”.

The IBR survey highlighted that 72% of SA executives believe that the current tax arrangement does not bring enough economic participants into the tax base. In addition the survey reveals that 48% of executives stated that the tax policies in our country are not geared to stimulate economic growth.

The ‘golden goose’ to which Jansen van Nieuwenhiuzen refers is the small minority of taxpayers (roughly 2.4% of all registered taxpayers and a mere 0.7% of the total population) who have a taxable income in excess of R750 000, and who contribute more than 45% of personal income tax to sustain the rest of the country and keep the wheels of the state turning. Given that as end-consumers, individuals directly and indirectly carry the cost of almost all the other taxes in South Africa, from VAT and Transfer Duty, to the Fuel Levy and Dividend Withholding Tax, a far greater percentage of the total tax burden of South Africa is borne by this minute group of the population.

"With 72% of SA business respondents complaining that as a nation we just don’t bring enough economic participants into the tax base, it really does raise some red flags,” he says.  "National Treasury needs to do more to expand our tax base and then possibly loosen the ties currently constraining our ‘golden goose’.”

He adds that this would automatically ensure South Africa’s tax policies better stimulate economic growth.

"There is possibly some hope, though.  With the OECD tasked to prevent tax base erosion and profit shifting through global reforms, and the recently -formed Davis Commission, led by Judge Dennis Davis in South Africa, being set up to review our tax system, we will hopefully start seeing benefits both locally and internationally which will no doubt facilitate economic growth and an improved global tax planning environment,” Jansen van Nieuwenhuizen concludes.

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