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Current tax system not one size fits all: Davis

Monday, 15 June 2015   (0 Comments)
Posted by: Author: Carla Bernardo
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Author: Carla Bernardo (IOL)

The current tax system could assist in lessening the inequality gap in South Africa, but was not the solution to the country’s challenges, said Judge Dennis Davis, head of the Davis Tax Committee (DTC), on Wednesday.

Davis, accompanied by committee colleague, Dr Ingrid Willard, presented a DTC progress report to the standing committee on finance in Parliament in Cape Town on Wednesday.

The committee, which was established in July 2013 by then Finance Minister Pravin Gordhan, had been mandated to "inquire into the role of the tax system in the promotion of inclusive economic growth, employment creation, development, and fiscal sustainability”.

On South Africa’s levels of inequality, Davis referred to a study done by the World Bank which provided an "extraordinary confirmation of our current tax system” in that it had indicated that the current system had assisted in lessening the gini coefficient, which measures a country’s distribution of income among its citizens. The gini coefficient is also used to measure inequality.

According to the study, South Africa’s current tax system was progressive and pro-poor.

However, stated Davis, socioeconomic challenges, the electricity shortage, and an inherited system of unequal distribution of wealth contributed to making the task of closing the inequality gap a tricky one.

"We are a creature of an inherited system of unequal distribution of wealth,” he said. For this reason, said Davis, revenue services were forced to "go down the ranks” in order to increase the so-called one percent, the country’s wealth base.

"You can’t keep taxing at the lower end, you just cannot…people are battling,” Davis noted.

Davis hinted towards the need for annual wealth tax. "Let me be clear on this, we do not have annual wealth tax. We have capital gains tax,” he said.

Davis said tighter and more targeted estate duty tax was the type of system South Africa needed and that threats of the country’s rich immigrating because of the possibility of this was a "load of nonsense”.

He said it was essential the tax system avoided creating a society of "trustafarians” (children who inherited from their wealthy parents).

Davis added that the need to deal with higher income individuals and corporates who abused the tax system was critical.

"People need to pay their fair share, it is as simple as that,” he said. He also highlighted that corruption and corrupted tax morality threatened stability in the country.

"There is higher tax morality when people know their money is being well spent,” he explained.

Making a reference to subcommittee reports that have yet to be released – which included the mining report, estate duty, and VAT – Davis urged the public to participate in providing feedback on these reports. He added that he was looking forward to their reactions to these reports, once they were released.

"We want to encourage people to engage with us,” he said. "We are all in this boat together.”

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