South Africa’s effective corporate tax rate of 37,8% — unchanged since 2003 — is substantially higher than the global average of 29,07%, a KPMG world survey has highlighted.
KPMG’s 2004 Global Corporate Tax Rate Survey, now in its 11th year, covers 69 countries, including South Africa and the 30 member countries of the Organisation for Economic Cooperation and Development (OECD).
The survey confirms the global trend of decreasing corporate tax rates. The average corporate tax rate for OECD countries is now 29,96%, down from 30,79% in 2003, and for European Union countries 31,32%, down from 32,53% in 2003.
The average for all the countries surveyed in 2004 is 29,07%.
This is a noteworthy decrease from 2003. However, a low tax rate does not necessarily signify a low tax burden, which should be gauged by considering a country’s tax base.
In addition, a cut in one type of tax often results in an increase in other taxes to maintain tax revenues.
Other factors not taken into account in the KPMG survey include indirect taxes, financial inducements for domestic investments and the sophistication of the tax law environment.
Even when one eliminates secondary tax on companies (STC), reducing South Africa’s rate to 30%, the figure is still high compared with other emerging markets.
Bolivia’s tax rate is 25%, Croatia’s 20%, Russia’s 24%, Ukraine’s 25%, Korea’s 29% and Malaysia’s 28%.
Michael Honiball, KPMG’s head of international tax and transfer pricing, said he hoped the survey would assist in triggering a reduction of South Africa’s STC rate next year.
While this is necessary to ensure a level playing field so as to encourage foreign direct investment, it is unlikely in the context of the projected tax shortfall caused by the strong rand.
Robin Friedland is a former specialist tax writer for the Financial Mail. He will be writing regular news and analysis on tax issues for the Mail & Guardian