Reg Rumney
The South African Chamber of Business (Sacob) has=20 cautioned against bringing in “dedicated” taxes and=20 levies such the one suggested to fund a new health=20
Opposition to such taxes is set out in the chamber’s=20 submission on corporate tax to the Katz Tax Commission,=20 released this week.
“The whole rationale for dedicated taxes — as distinct=20 from user charges — needs to be questioned,” says=20
Sacob argues a “health tax”, for example, would not=20 necessarily ensure any greater funding for health:=20 other priorities might tempt the government to cut the=20 “non-dedicated” budgetary allocations to that=20
“A plethora of dedicated taxes could therefore simply=20 serve to undermine budgetary and parliamentary control=20 over aspects of state expenditure and overall fiscal=20
To be sure, Sacob’s starting point is business needs=20 rather than social priorities. And it makes a fine=20 distinction between a health tax and a dedicated road=20 fund, financed from a fuel levy. The chamber has long=20 argued for a dedicated road fund.
Sacob’s argument is that fuel consumption and road use=20 are synonymous, so a road fund represents a “user=20
The chamber’s rejection of dedicated taxes is founded=20 on a fundamental caution about considering any one tax=20 in isolation.
Hence looking at the corporate tax rate, be it the=20 “nominal” rate published by the authorities or the much=20 lower “effective rate” the business sector pays on=20 average, is only one part of the picture.
The business sector also has to pay, among others,=20 taxes on dividends and Regional Services Council=20
Sacob’s contention that dedicated taxes be avoided is=20 one of several recommendations that arise from the=20 apparently well-researched document, which examines six=20 countries’ economic performances and tax regimes in=20 detail, and other international corporate tax trends.
Concluding that the South African corporate tax rate is=20 too high compared to those in successful countries, the=20 Sacob study finds that:
* If Secondary Tax on Companies (STC) were scrapped,=20 the average tax rate levied on corporate income would=20 have to be raised 4,6 percentage points to compensate=20 for revenue lost. The nominal corporate tax rate is now=20 35 percent, which is raised to 48 percent by STC.
* A single corporate tax rate of above 40 percent=20 would be highly damaging to business and investor=20 confidence. Even a return to 40 percent should be=20 accompanied by a reduction to an internationally=20 competitive level in a short while.
* Tax incentives or tax rates should not result in=20 effective tax rates lower than those in countries whose=20 companies are likely to invest here. Such rates merely=20 export part of the South African tax base to a foreign=20
* Tax incentives come second to a single, low=20 corporate tax rate without exemptions.
* In the absence of a low corporate tax rate, tax=20 incentives can be used — but carefully and=20
* Lower tax rates and tax incentives alone will not=20 attract investment. Unfavourable “environmental”=20 factors will still discourage potential investors.
Among other recommendations are that tax administration=20 be beefed up, as was proposed by the interim report of=20 the Katz Commission, and that government spending be=20 reduced, without which tax reform will remain mere=20