The White Paper on the government’s reconstruction and development programme could be a black day for fringe benefits. Reg Rumney reports
THE White Paper released this week on the ANC’s grand plan to right the economic wrongs created by apartheid could spell bad news for the few perks employees have left.
The White Paper released by Minister without Portfolio Jay Naidoo this week promises to crack down on tax evasion and avoidance.
“Support will be given to the Commissioner of Internal (sic) Revenue to increase the efficiency of collection, and to crack down on evasion and leakage.
“All tax incentives and exemptions should be listed and a cost-benefit analysis carried out. Incentives that comply with the government’s development, industrial, investment, human resource development and social policies should be subject to cost- benefit analysis and an explicit political decision should then be taken on each. All other incentives should be terminated.”
Tightening up on tax evasion, which is a crime, could garner fairly large amounts of revenue. South Africa nothing like matches the United States Internal Revenue Service, which has more of a claim to being the undoing of gangster Al Capone than the FBI.
The rumour among tax planners is of introducing prison sentences without the option of a fine for evaders. Cracking down on evaders would send a strong message to people who cheat on their tax returns.
However, changes need not be draconian to be effective: business would no doubt welcome an increase in the quality of enforcement. A bigger and better revenue staff would increase tax certainty, which is needed for business planning.
The feeling is that if increasing tax revenue is the aim, tax incentives enjoyed by companies are the target rather than perks or fringe benefits, many of which are now taxed.
But Ernst & Young tax expert Christo Theron believes there are still a few which could be taxed.
The obvious one, he says, is the rented housing provided by employers to employees for free. Although the idea of this is that employers provide accommodation for lower paid employees, it is more widely used by upper income earners, believes Theron. It is expected that this will be taxed.
Another sporting bet is the removal of the tax benefit to companies which pay 100 percent of the medical aid subscriptions for their staff.
“This is a bit of a political hot potato, because it could be seen as a move against private health care.”
Another possibility is changing the tax tables for company cars, so that more of the benefit is taxed.
The compilers of the White Paper restate a principle accepted in the last Budget that the general level of tax is similar to other places in the world — measuring tax as a percentage of gross domestic product, the main yardstick of national economic activity.
The White Paper also mentions President Nelson Mandela’s explicit promise not to raise taxes overall. That is reassuring for those who believe the general level of tax is most important, and that how it is made up is merely “smoke and mirrors”.
However, it also says more tax will be raised, by better collection rather than higher taxes.
The White Paper clearly believes who pays what is important. It states: “However, over the past decade the burden of tax has moved from corporations to individuals, primarily on the income group (earning) R20 000 to R80 000 a year, who now pay 70 percent of all personal tax. This group consists mainly of wage earners and those with private sector pensions.”
The White Paper uses the phrase “excessive indirect taxation”, referring most probably to Value Added Tax. Yet this matter, along with the others will be left to the Tax Commission that the finance minister has already appointed to advise him.
While the burden on individuals is pinpointed no commitment is made to remove “fiscal drag” or “bracket creep”, the phenomenon whereby wage increases prompted by inflation push employees into higher tax brackets, a form of hidden extra tax.