Minister of Finance Trevor Manuel is expected to provide further details in Wednesday’s national Budget about the new form of business tax that will take the place of regional service council levies — including when enabling legislation is likely to be put to Parliament, says Local Government Research Centre head Clive Keegan.
It was announced last year that the regional service council (RSC) levies would be scrapped from July 1 this year. It is expected that a new tax on businesses will replace the RSC levies — itself a tax on turnover and staff.
Keegan said the RSC levies are difficult to police and collect as many metropolitan and district councils do not have the financial capacity to collect the tax effectively. Only metros and district councils collect the tax — and not the bulk of councils.
The proposal is that a new business tax would be collected by the South African Revenue Service (Sars), thereby streamlining the process of collection and producing greater efficiencies. This tax would then be transferred back to the relevant municipalities.
A discussion paper released by the Treasury recently suggested that business would be taxed on salaries, wages, profit and interest. One of the efficiencies of SARS becoming involved is that it can check assessments against information already collected from value-added tax and income-tax returns.
While Keegan noted that this does amount to a centralisation of the tax-collection process — with local government losing this control — local governments do not generally have the capacity or financial skill to manage the tax collection process effectively.
“It is simply a question of facing reality. It will be efficient and municipalities will not be losing that revenue stream.”
While he does not expect Manuel to make firm policy announcements on the new tax at this stage, he said that the minister might mention plans for enabling legislation to be tabled in Parliament.
In the 2002/03 financial year, RSC levies amounted to R3-billion for the six metro councils. This was about 6,8% of the six metro councils’ revenue for the year compared with just more than 19% for property rates and nearly 30% for electricity levies.
The abolition will mean a loss of R24-billion to the fiscus — and effectively to the district and metro councils — over three years. Manuel said in the previous Budget that when the RSC levies were phased out they would be replaced “by a mixture of grants and alternative taxation instruments from July 1 2006”. — I-Net Bridge