LIST: 9 measures to see if SA's tax regime is healthy

Johannesburg – Tax policy has a role to play in addressing the imbalances of the economy, but tax alone cannot solve all the economic challenges the country is facing, said Elias Masilela, member of the National Planning Commission (NPC).

Masilela, speaking at the Tax Indaba 2017 in Sandton on Monday, highlighted that in a time where there is a trust deficit and low confidence levels among stakeholders, tax policy is not necessarily an answer to challenges.

Using Ireland as an example, he said the buoyancy of the tax system will be worsen if taxes are raised, tax morality will decline and there will be poor tax compliance. In Ireland, he said, when taxes were raised people were “pushed underground” and tried to move from the formal economy to the informal economy.

“As long as people have no confidence that the taxes they pay is spent in the right way, they will not want to pay more tax going forward,” he said.  “We need to change the environment in which we implement the tax regime.

“A good [tax] policy deals with underlying fundamentals and changes the behaviour of economic agents.”

Finance Minister Malusi Gigaba earlier pointed out the importance of tax morality. In his address also delivered at the Tax Indaba he explained that taxpayers should be confident that their monies are being used wisely by government.

Tax morality plays a significant role in the country to ensure the efficient use of resources and reduce corruption, he said.  “Government must do its part to ensure taxpayer money is used wisely, reduce fruitless and wasteful expenditure and ensure taxpayers are treated fairly.”

He also made reference to the Tax Ombud’s report on its investigation into systems at the South African Revenue Service (SARS), which recommends ways to restore confidence in taxpayers. 

Masilela underlined nine measures to test the efficacy of a tax system, especially given the current challenges South Africa is facing.

1. A tax regime must be progressive rather than regressive.

Given the level of inequality, we can’t have a regressive tax regime. Masilela said that raising VAT is an example of regression.

2. It should aid the closing of the wealth and income gaps in society.

3. It should encourage private sector-led growth.

Tax should not crowd out the private sector and send them underground, it should crowd them in, said Masilela.

4. It should incentivise investment.

This means it should encourage more saving and less consumption by the private and public sector, he explained.

5. It should incentivise higher labour absorption, encourage growth and employment creation.

6. It should promote skills develop such that people are more mobile and marketable.

7. It should encourage research and development to stimulate innovative entrepreneurship, as seen in the US.

Even though the US dragged the rest of the world into the global financial crisis, it was the first to get out of it because of its innovation. “The US has a very interesting characteristic to innovate itself into trouble and can innovate itself out of trouble.”

8. A sound tax regime should proactively promote small and medium enterprise development. The bureaucracies SMEs are exposed to need to be cut.

9. It should encourage sustainability.

This is not just with regard to the green economy, but should make sure the economy is sound, not just for one generation but up to five generations.

Masilela added that the tax regime must be supported by “sound policy making”, better governance, improved transparency and deep levels of accountability. On its own, it will fail.

Masilela added that it is not the sole responsibility of SARS to ensure a healthy tax regime, but that of stakeholders in the South African economy as well.

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