SA tax base: the danger of “more mice and less cheese”

South Africa’s tax base has not shrunk, but the working class has disappeared and only a small number of wealthy taxpayers contribute the bulk of the country’s personal income tax revenue.

Economists and tax experts on Monday warned of a threatening national revolution as long as “ideologues and crooks” remain in power and the current unsustainable level of unemployment and people dependent on the state for their survival continue.

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Perspective

Dawie Roodt, chief economist of the Efficient Group, says that even if the South African Revenue Service (Sars) is able to collect more taxes, it does not mean that the burden on taxpayers will be lighter.

“It just means politicians will have more money to spend,” he said at the annual Tax Indaba in Sandton.

According to Sars figures, about 15 million individual taxpayers contribute about 35% of total personal income tax revenue.

However, only 2% (about 200,000) contribute more than 30% of total personal tax revenue.

These taxpayers pose a “leakage risk” as the demands of nearly 30 million South Africans on some form of government assistance increase.

“The [are] lots of mice are fighting over less and less cheese and as cheese becomes more and more scarce the battle is getting closer,” says Keith Engel, CEO of the South African Institute of Taxation.

South Africa’s efforts to increase economic growth through trade and industrial policies have yielded very little in the past decade. There is no empirical evidence that policies such as localization have made a difference in economic growth, increased investment or job creation, says Paul Bondi, co-CEO of Rothschild & Co (South Africa). South).

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Nothing wrong with patriotism, but…

There’s nothing wrong with being patriotic, but the way SA implements localization is wrong, says François Fouché, executive director of Growth Diagnostics.

“…trying to force it to swallow the industry won’t get the results the country is looking for,” he said during a session on localizing industry during the indaba.

Localization has been around since 2011 and over 40 products have been identified for localization.

Trade, Industry and Competition Minister Ebrahim Patel announced the list last year and said R240 million had been raised from the private sector to appoint technical experts to pilot localization.

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The “noise” of location has gotten louder over the past three to four years, says Luncedo Mtwentwe, MD of Vantage Advisory. There are questions about the process that was followed to identify the products and the impact their production could have on the economy.

“The government will introduce new products every year. We have to be careful with some of the populist policies because we don’t live in isolation… It’s unclear what they will achieve in terms of industrialization and global competitiveness,” he adds.

According to Fouché, there is an increase in “underhanded tactics” by the Ministry of Commerce, Industry and Competition to propose local production targets in order to suppress imports.

“I think it’s rather narrow-minded and narrow-minded to think that we can develop an industry by reducing imports.”

He adds that implementing localization while there are other constraints in the economy will only drive up prices, hurting consumers and the downstream market.

Rules of the game

Bondi says multinationals will “accept” the rules of the game if they know what they are and if they are predictable. The central problem is that they don’t understand them.

Donald MacKay, CEO of XA Global Trade Advisors, says the effect of localization and current trade policy has been “ultra-micro” interventions.

“Every element of a transaction has some sort of intervention – either through the Competition Commission or through intervention on rights issues.”

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This, he says, means that every transaction has almost a unique set of requirements.

“The process then becomes unpredictable. You have to get a political agreement before transactions can take place, and that’s problematic. This process becomes corruptible,” he warns.

More maturity

According to Fouché, the country needs to be more mature in how it assesses its trade and industrial policies. They should be judged on their results and not on their intentions.

“We shouldn’t use localization to protect what we already have. We should use it to produce goods that we don’t have.

There is a common characteristic between poor countries and rich countries.

Rich countries produce a wide range of reasonably complex goods, while poor countries — and South Africa is moving in that direction — produce less complex goods and fewer of those goods, Fouché says.

South Africa’s international competitiveness, if measured by economic complexity, has deteriorated while other African countries such as Botswana, Mauritius and to some extent Kenya have experienced an increase in economic complexity.

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