While no meaningful reduction in personal income tax should be expected in the February 2007 main budget, the focus could be on the corporate tax regime instead, says Sanlam group economist, Jac Laubscher.
“While government seems favourably disposed to lowering tax rates, it is keeping its options open as far as lowering taxes in the main budget in February 2007 is concerned,” says Laubscher.
“It is a well-known fact that most of the tax overrun in recent years has come from the corporate sector, partly because of increased profits on the back of a buoyant economy, and partly because of improved tax compliance. The contribution of company taxes to total tax revenue is projected to reach 25,4% in 2007/08, compared with 19,8% in 2002/03,” says Laubscher.
“If the secondary tax on companies is included [in the eyes of the National Treasury it is, of course, a moot point whether STC is indeed a tax on companies], the company tax burden is set to rise from 22% of total tax revenue in 2002/03 to 28,6% in 2007/08. This will take corporate taxes to 8,3% of GDP, which is high by international standards,” he explains.
“A reduction in the corporate tax burden therefore seems highly appropriate to support the supply side of the economy,” said Laubscher.
“The challenge is how to skew corporate tax relief towards supporting investment in the export sector of the economy, or more generally the tradable goods sector,” concludes Laubscher. — I-Net Bridge