Tax evasion falls under Gordhan’s spotlight

Finance Minister Pravin Gordhan is tackling tax peculiarities

Finance Minister Pravin Gordhan is tackling tax peculiarities

The recent implication of huge corporate names such as Google and Apple in acts of tax evasion have brought the issues of profit shifting sharply into focus internationally.

It is against this backdrop that Finance Minister Pravin Gordhan outlined the terms of reference for a tax review committee to tackle this and other peculiarities that have crept into the tax environment since it was last reviewed 20 years ago.

The announcement was previewed by his comment in February’s budget speech that “a tax review [would] be initiated this year to assess our tax policy framework and its role in supporting the objectives of inclusive growth, employment, development and fiscal sustainability”.

Among other things, the review will address complexities arriving from more modern revenue streams.

“The world has been changing. There are new types of economic activity, some of which have not been taxed,” Gordhan said as he introduced the committee at a media conference in Pretoria on Wednesday.

Judge Dennis Davis, who was a member of the commission of enquiry into certain aspects of the tax structure of South Africa in 1993 and who will chair the committee, agreed.

“Twenty years ago, we certainly weren’t thinking about things like e-commerce,” Davis said, adding that anyone who had read a report by the Organisation for Economic Co-operation and Development (OECD) would know the level of international concern around profit shifting and so-called base corrosion, a term that describes that a population’s tax base is not yielding the anticipated tax income.

This seemingly compounding issue has drawn in the efforts of various cross-border forums. Among these is the G20, which in May said it had identified tax evasion and avoidance as a topical issue for its agenda.

According to Ksenia Yudaeva, the chief of the Presidential Experts’ Directorate at the OECD Forum on Tax Administration, the group is working to find solutions to the problem.

It had also been supporting the OECD in developing a system for automatic exchange of information between financial institutions.

“The goal is to maximise compliance benefits for member countries, reduce costs for financial institutions and provide the necessary ­safeguards through the development of a single standard,” said Yudaeva.

Last month, British politician George Osborne told the Guardian that the G8 summit had made more progress in ending tax secrecy and corporate tax evasion in 24 hours than had been achieved in the previous 24 years.

The goal, he said, was to make the international tax system fit for the 21st century.

Advising the government
And the local tax review committee is intended as a well-placed, independent body to advise the government on how this can be handled in the country.

Among the seven people in the group over which Davis will preside is Annet Wanyana Oguttu, a law ­professor from the University of South Africa.

Oguttu’s LLD thesis was titled Curbing Offshore Tax Avoidance: the Case of South African Companies and Trusts.

She will be joined by independent fiscal consultant Tania Ajam; public finance economist Professor Nara Monkam; associate ­professor of economics at the University of Cape Town Ingrid Woolard; Rhodes business professor Matthew Lester; head of the school of accountancy at Wits, Professor Nirupa Padia; and chairman of the treasury audit committee Vuyo Jack.

Together, the committee will make a broad inquiry into the role of the tax system in the “promotion of inclusive economic growth, employment creation, development and fiscal sustainability”, said the finance department.

The committee is advisory in nature, and will take into account “recent domestic and international developments” and the long-term objectives of the National Development Plan.

Aspects to pay attention to
It sets out nine aspects to which it will pay specific attention, including examining the overall tax base and tax burden, reviewing the tax mix, looking at how the tax ­system ­promotes small and medium ­business, and reviewing the corporate tax system.

The team will provide an interim report to the minister by the end of the year, which will include a “report on small and medium businesses”, said Davis.

Billy Joubert, tax director at Deloitte South Africa, said frameworks developed by the international community may have more sway over local policy than anything else.

“The huge changes that are likely [to come about in tax policy] might not come from this committee but from the international environment,” he said this week.

Thalia Holmes

Thalia Holmes

Thalia is a freelance business reporter for the Mail & Guardian. She grew up in Swaziland and lived in the US before returning to South Africa.She got a cum laude degree in marketing and followed it with another in English literature and psychology before further confusing things by becoming a black economic empowerment (B-BBEE) consultant.After spending five years hearing the surprised exclamation, "But you're white!", she decided to pursue her latent passion for journalism, and joined the M&G in 2012. The next year, she won the Brandhouse Journalist of the Year Award, the Brandhouse Best Online Award and was chosen as one of five finalists from Africa for the German Media Development Award. In 2014, she and a colleague won the Standard Bank Sivukile Multimedia Award. She now writes and edits for various publications, but her heart still belongs to the M&G.      Read more from Thalia Holmes

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