Time to rethink taxes

Robert Laing

Robert Laing

Global tax experts have gathered at the Council for Scientific and Industrial Research conference centre in Tshwane, to brainstorm on how to give South Africa the world's best tax system.

Finance minister Trevor Manuel concluded his opening address at the symposium yesterday by saying: "We do not want the world's second best tax system. That will fail our democracy."

Delegates include Michael Katz who drew up the blueprint for South Africa's tax reform over the past decade.

This has seen South African Revenue Services collect more revenue than budgeted every year, though corporate and personal tax rates have been steadily cut thanks to better compliance and a broader tax base.

A similar tax symposium was last held in 1999.

"It is a good time to take stock and rethink our tax system with an election coming next year," Manuel said.

"If all we do is pat ourselves on the back for over-collecting in the past 10 years, the world will run past us."

Among the issues the symposium will debate are whether changes are needed to South Africa's value added tax system and what industrial incentives should be offered.

Some tax experts have called on government to raise VAT from the current 14percent while broadening the range of VAT exempt goods bought primarily by poor households.

Manuel did not sound keen on this, citing brown bread as an example of how VAT exemptions are not passed on to consumers.

"South Africa is unusual in that there is VAT on white bread, but not on brown bread.

"Besides not carrying the 14 percent tax, brown bread is made from flower which is cheaper to produce. But I don't see these savings on brown bread at my corner shop," Manuel said.

Regarding new industrial incentives to replace the department of trade and industry's expired Strategic Industrial Projects programme, Manuel cautioned against joining "a race to the bottom" against other developing economies.

These often attracted "footloose" multinationals who closed their factories and moved on as soon as their five-year tax holidays ended.

"We also don't want to encourage smokestacks into pristine environments.

"But low labour absorption is a huge problem in our economy, so we do need to encourage investors who create jobs," Manuel said.