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Growing economy still the biggest challenge

Le Roux Roelofse, Deloitte tax director. Le Roux Roelofse, Deloitte tax director.

FINANCE MINISTER PRAVIN GORDHAN’S BUDGET SPEECH WAS UNREMARKABLE, BUT NOT UNINTERESTING. ALTHOUGH THERE IS LITTLE ROOM FOR TREASURY TO MANOEUVRE, THE DAVIS TAX COMMITTEE MAY FIND NEW WAYS TO BROADEN THE TAX BASE.

Looking at the 2014/15 Budget, there seems to be consensus among observers that not much has changed. And for good reason. Firstly, Gordhan has committed to keep government spending under control. The Budget expenditure for 2013/14 was R1,15tn. For 2014/15 it is R1,25tn. This sends a clear signal that there is overall fiscal stability.

The second reason for keeping the Budget unsensational is that there have been so many tax changes over the past five years. SARS needs time to iron out the inconsistencies, anomalies and unintended tax consequences that have arisen from legislation that has become exceedingly complex. Taxpayers, tax practitioners and SARS all need to consolidate and internalise these changes.

Thirdly, Treasury wants to avoid the situation where taxpayers are unwilling to pay. The government realises it cannot simply impose new taxes without first considering the consequences. A good example of this is the e-tolling system in Gauteng, which caused a huge outcry last year.

Tax systems evolve; they don’t remain static. What waits for us over the horizon are the findings of the Davis Tax Committee. Set up in July 2013, this review committee is likely to recommend ways to make taxation more efficient. The committee has already made some recommendations regarding small and medium enterprises. Proposed new tax mechanisms could include a wealth tax – for example, taxing a percentage of wealthy individuals’ assets per year.

In essence, any tax system is a contract between the state and its citizens. Tax is an inevitability, like death, as Benjamin Franklin so famously put it. Most citizens will pay tax if they think the system is fair. There should be a greater culture of tax morality in South Africa, where taxpayers accept that they have a responsibility to pay taxes and where government needs to make sure that state expenditure is well-placed.

Ultimately, the challenge we face is how to achieve a higher growth rate. The economy needs to expand by 5%, or more, per year in order to address the legacy of poverty and inequality. However, for the past five years GDP has increased on average by less than 2% per year, while per capita income growth has been a measly 0.6% a year.

Clearly we cannot go on like this indefinitely. The unemployed need to come into the formal economy, get off state grants and join the tax base. This will have a huge multiplier effect.


By Le Roux Roelofse, Deloitte tax director.

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