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‘Tread carefully with tax hikes’

Wednesday, 11 November 2015   (0 Comments)
Posted by: Author: Ingé Lamprecht
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Author: Ingé Lamprecht (Moneyweb)

South Africa should be careful and refrain from moving forward recklessly when it considers additional tax hikes as these also have an economic downside, an executive at the South African Revenue Service (SARS) has warned.

"The more tax you take out of the economy… the more you constrain the economy,” said Dr Randall Carolissen, SARS group executive for revenue planning, analysis, reporting and research.

According to the 2015 Tax Statistics, South Africa’s tax-to-GDP ratio increased from 24.9% in 2013/14 to 25.7% in 2014/15. While this exceeds the long-term average of 24%, it remains below the peak of 26.4% reached in 2007/08.

peaking at the release of the statistics, Carolissen said South Africa’s tax-to-GDP ratio was at "the upper end” of the spectrum when compared to its global peers.

He said the Laffer curve (a graphical illustration of the relationship between tax rates and tax revenue) shows that a country can only extract a certain amount of tax revenue from its economy before resistance starts to develop against tax hikes.

Carolissen said he was not in a position to comment on whether South Africa has reached this level, but warned that policymakers should carefully consider whether there is room for further tax hikes and the types of taxes that could be hiked.

His observations followed the release of what SARS regards as relatively resilient revenue collection against a background of muted economic growth, moving some to question whether the statistics suggest that the tax system could sustain further tax hikes.

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