BUDGET: GOVERNMENT MUST GET THE TAX BALANCE RIGHT, SAYS SAIPA

Speaking ahead of the Budget speech on 22 February, the South African Institute of Professional Accountants (SAIPA) has warned that government needs to be cautious when it comes to tax rates for both individuals and corporates.

"Over the past several years, individual taxpayers have contributed an ever-growing share of the country's tax revenues. 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," notes Ettiene Retief, chairperson of SAIPA's National Tax (Policy) and SARS/National Treasury Stakeholders (Operations) Committees.

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

Retief argues that tax rates are a highly political act as the money collected is directly channelled into implementing the ruling party's programmes. "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," says Retief.

"Wasteful and fruitless expenditure is widely covered in the media almost every day, and this makes it hard for government to argue it needs to collect more taxes from already overburdened taxpayers. We have successfully created a culture of taxpaying in this country, but it would not take a lot to destroy it at this stage."

When a government loses its moral right to levy taxes, individuals can be surprisingly successful at circumventing them. For example, anecdotal evidence suggests that fully a quarter of the Italian economy takes place outside of the tax net and, of course, successful tax and foreign exchange evasion was a hallmark of this country as the apartheid government lost legitimacy.

"Bearing these factors in mind-and that 2012 is an important year politically-I expect individual tax rates to change only marginally, mostly to bring some relief from 'bracket creep' to the lower income earners," says Retief. "I also expect the minister to announce the next steps in his reform of retirement funding."

When it comes to the other two big contributors to tax revenues-corporate tax and VAT-Retief also recommends caution. South Africa's VAT rate of 14% is just under international benchmarks, so there is a little room for increase. The minister's hand might be forced if the decline in VAT collections during the current tax year has 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.

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, Retief feels, would anyway not raise significant extra sums given the state of the economy.

"The recovery is fragile and I imagine government will be reluctant to risk damaging it by any dramatic moves in the tax area," Retief says.

"However, while we currently enjoy a good debt position, we don't want to compromise that by taking on too much more debt to fund the big infrastructural and social programmes we need-so growing the tax base is important. All in all, it's a very tricky balance the minister must strike."

About SAIPA (South African Institute of Professional Accountants) As South Africa's leading professional accountancy institute, the South African Institute of Professional Accountants ( <www.saipa.co.za> SAIPA), plays a very important role in ensuring that its members are able to optimise their accountancy practices or add value to their employers and, by so doing, manage the wealth of the country to the benefit of its citizens.

Statement issued by PR Republic on behalf of SAIPA, February 15 2012

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