Finance Minister of the Year 2013, in Sub-Saharan Africa, Pravin Gordhan will occupy centre stage on Wednesday afternoon when he delivers his Medium Term Budget Policy Statement (MTBPS), and expectations are high, particularly in the area of taxation.
Indeed, all and sundry have recommendations for Gordhan on how he should do his job. Few cut him any slack on the ‘balancing trick’ that the job at hand demands. Budget watchers know that Gordhan’s style is never to surprise. So whilst South Africans enjoy the anticipation of the ‘big announcement’, history has shown that we can expect little in the vein of new tax policy.
Gordhan has tried to prepare the ground by way of ‘tit bits’ around Carbon Tax, e-tolls, Base Erosion and Profit Shifting (‘BEPS’, essentially, measures to counter-act tax avoidance through transfer pricing and international tax structuring), the Employment Tax Incentive (also referred to as the Youth Wage Subsidy), Special Economic Zones (SEZ’s), the next steps with the National Health Insurance (NHI), the future of the Mining Tax – all of which have elicited much debate, with no real certainty on how it will impact the average South African.
With so much focus on wasteful spending in the public sector, subdued economic growth projections and hence declining revenue projections and a rising tax to GDP ratio, South Africans will not take kindly to any tax hikes. But to question whether our tax policy and the tax system are aligned with the broader economic objectives of the country is entirely appropriate.
History has shown that we can expect little in the vein of new tax policy
Minister Gordhan has effectively left it to the Davis Committee to come up with recommendations to ensure that going forward, the tax policy framework supports economic growth, job creation, development and fiscal sustainability. No answers can be expected in the MTBPS.
The top 5 focus areas of the Davis Committee:
1. Overall tax base and the spread of the tax burden (an emotive issue in South Africa) 2. The tax mix (that is, personal income tax, VAT, company tax, etc) 3. How the tax system promotes SMMEs (a clear focus on the ‘small’ in ‘SMME’ is long, long overdue. After all, this is the sector that if supported appropriately, is capable of making a dent in our unemployment legacy). 4. Reviewing the corporate tax system 5. Simplifying tax laws
Following Mark Shuttleworth’s recent victory in court, the State has one year to revise any South African Reserve Bank regulations that are considered ‘unconstitutional’. Whilst there is no chance that Exchange Controls will be abolished, there is every indication that Minister Gordhan will take the opportunity that the MTBPS presents to articulate the scrapping of regulation that is still prohibitive and to announce regulation that broadly permits the free flow of capital but with certain exceptions.
Gordhan needs to restore confidence – not just for South Africans but for those rating agents who will pounce on any indication that our budget deficit will come in way off target. Leadership skills are indeed tested in times of strife.
Nazrien Kader is Deloitte National Leader for Taxation Services.
– By ANALYSIS: Nazrien Kader, Deloitte SA
