Gordhan urged not to eliminate tax-paying culture

Finance Minister Pravin Gordhan must beware, in his upcoming budget speech, of destroying the South African culture of paying taxes, the South African Institute of Professional Accountants (Saipa) said on Wednesday.

“We have successfully created a culture of taxpaying in this country but it would not take a lot to destroy it at this stage,” spokesperson Ettiene Retief said in a statement.

“Government’s growing reliance on individual taxpayers to fund the fiscus means that it is increasingly dependent on convincing individual taxpayers that their money is being well-managed and sensibly spent.”

He said wasteful and fruitless expenditure was widely covered in the media and this made it difficult for the government to argue it needed to collect more taxes from already overburdened taxpayers.

Gordhan will present his budget to Parliament on February 22.

Retief said individual taxpayers had been contributing an ever-growing share of South Africa’s tax revenues in the past few years.

“It’s an approach that makes sense as this tax is easy to collect from employers and is fairly resistant to economic cycles, unlike corporate tax which depends on profits.

Political act
“The end result is that individual taxpayers now have precious little space to manoeuvre when it comes to structuring their salary packages.”

Retief said tax rates were a highly political act as the money collected was directly channelled into implementing the ruling party’s programmes.

“When a government loses its moral right to levy taxes, individuals can be surprisingly successful at circumventing them,” he said.

He gave as an example Italy, where about a quarter of economic activity takes place outside the tax net.

“[S]uccessful tax and foreign exchange evasion was a hallmark of this country as the apartheid government lost legitimacy,” he said.

In light of this, and given that 2012 would be an important year politically, tax rates would probably not change that much.

“I expect individual tax rates to change only marginally, mostly to bring some relief from ‘bracket creep’ to the lower income earners,” said Retief.

International benchmarks
There was little room to raise VAT, as the current rate of 14% was just under that of international benchmarks, he said.

“The minister’s hand might be forced if the decline in VAT collections during the current tax year had not been reversed.

“However, VAT is ultimately a tax on consumers so, at the least, any increase should be matched by a revision of the list of exempted items.”

He did not expect the minister to raise corporate taxes.

“During 2012, the secondary tax on companies will be replaced by a tax on dividends, effectively reducing corporate tax rates and so further promoting South Africa as an attractive investment destination and the obvious springboard into Africa.

“Raising corporate tax rates would thus be counterproductive and would not raise significant extra sums given the state of the economy,” said Retief.—Sapa

Finance minister Pravin Gordhan faces a stern test when he delivers his 2012 budget. View our special report


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