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Treasury mulls more taxes

Thursday, 22 October 2015   (0 Comments)
Posted by: Author: Nicola Mawson
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Author: Nicola Mawson (IOL)

Because of SA's weak economic outlook - with gross domestic product growth anticipated to be just 1.5 percent this year, government will approach new taxes with caution.

National Treasury notes, in the Mid-term Budget Policy Statement, that government aims to align its spending growth ceiling with a "long-term path of economic growth".

It says this will build on government's counter-cyclical approach to sustain development over the long-term.

However, given the weak economic outlook, proposals for additional taxes - which are essential to fund government's "ambitious" policy agenda - will be approached with caution.

Finance minister Nhlanhla Nene adds he has also requested further advice on a proposed wealth tax, which the ruling party has suggested as a way to increase the revenue base.

Over the next three years, says National Treasury, government will continue to explore reforms that promote an efficient and progressive tax system. It will take into account the Davis Tax Committee's recommendations, it says.

"Initiatives already under way include measures to combat base erosion, profit shifting and the misuse of transfer pricing."

Since 2014, the Davis Tax Committee has published reports on small business taxation, value-added tax (VAT), base erosion and profit shifting, estate duty and mining taxation.

The committee also published a report on the role of the tax system in supporting inclusive growth, employment, equity and fiscal sustainability. The reports are intended to stimulate debate on tax issues, which can sometimes be contentious.

National Treasury says two topics of current interest are:

* Corporate income tax - Concerns about base erosion and profit shifting, in particular the misuse of transfer pricing, remain topical globally and in South Africa. Initiatives are under way to comprehensively deal with leakages in corporate income tax.

* VAT - Treasury says although VAT might be perceived as regressive, comparative studies show South Africa's overall fiscal system (tax and public expenditure) is strongly redistributive.

Receipts generated from VAT - the second-largest source of tax revenue - are an important part of the resources that fund progressive public expenditure programmes in education, health and social protection. The committee's analysis of the efficacy of the VAT system, and the scenarios it presented on the likely impact of an increase in the VAT rate, have generated welcome debate.

So far, no decisions have been made. But an increase in the VAT rate remains one of the options available over the medium term to finance key elements of the National Development Plan.

In addition, National Treasury says it will soon publish a draft Carbon Tax Bill for public comment. It says there is a need to address the causes and consequences of climate change.

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