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Juta Tax Law author and Head of Tax at the University of the Witwatersrand, Depika Singh, shared her thoughts with us on this years budget speech in a brief interview conducted by Juta's Social Media & PR Coordinator Seanne Less.
SL: In your opinion, were there any surprises that came out of this year’s budget?DS: I think the surprise was the increase in the dividends tax rate from 15% to 20% which increases the effective corporate tax rate to 42,4%, making SA one of the Top 10 paying countries in terms of corporate tax in the world.
SL: Do you think the Finance Minister has stuck to the plan he set out in his medium term budget? If not, where do you think he has deviated?DS: Yes, Minister Gordhan has carried through the plan that was outlined in the medium term budget policy statement (“MTBPS”) to the 2017 Budget Speech. The theme of the MTBPS was one of inclusiveness – where all the people of South Africa in their various capacities work together to achieve a common purpose of a brighter economic outlook for all. The Budget Speech served as an expansion of Minister Gordhan’s plans of raising R43 billion in tax over the next two years, with the target for the 2017/18 fiscal year being set at R28 billion, by raising the tax brackets, introducing a new personal income tax bracket, announcing that the carbon tax and sugar tax, respectively, will be implemented in the course of the year. The detailed expenditure in the Budget Speech was in line with that outlined in the MTBPS
SL: What are your thoughts on the increase in the progressive tax rate to 45%? Do you think the increase is fair considering the shortfall SARS experienced during their collecting last year?DS: Only +-100 000 taxpayers are affected by the introduction of this new tax bracket. I agree that a tax system should be fair and equitable taking into account, that it is expected that those earning a higher income would contribute higher taxes. However, in my opinion the excessive burden on this one particular group of taxpayers is a concern considering the frustrations regarding wasteful and excessive spending of public sector funds and the lack of corporate governance at SoEs. The other concern would be the aggressive tax planning that the taxpayers would engage in due to a decline of tax morality. Lastly, the brain drain the country might experience due to these taxpayers choosing to settle in other countries with a lower tax rate.
SL: Do you think these increases in the higher tax brackets made the budget “pro-poor”? DS: Definitely, coupled with the fact that there was no increase in the current VAT rate.
SL: Do you feel enough is being done to monitor and curb wastage by public officials? What do you think can be done to curb this problem in South Africa?DS: The Minister, outlined in the MTBPS that the Office of the Chief Procurement Officer has taken bold steps to combat abuses of the systems that lead to wastage and corruption by public officials –there has been modernisation of procurement systems in government and there is massive legislative reform on the cards such as for example the Public Procurement Bill. We have seen in the media that various government senior officials have been brought to task for wasteful expenditure. The Auditor General continues to be the authority that holds public officials accountable for expenditure in their various portfolios – while his findings are tabled in Parliament with penal sanctions applied to portfolios that do not have clean audits, there could be more “bite” given to the AG’s office to uproot this problem in its entirety.
SL: Which other areas of the budget do you think Treasury could have focused on to stimulate economic growth? DS: A broader definition of “royalties” with the resultant increase of the royalty withholding tax base is a consideration. They could also have revisited the once-proposed services withholding tax, that would mainly impact multinational organisations, in an effort to broaden the tax base and sources of revenue. The resultant commercial impact would have to be considered, as there is no benefit in increasing a tax base while driving investment out of the country at the same.
We would like to thank Depika for taking the time out of her busy schedule to do this interview with us.
Depika Singh CA(SA), MCom (Wits)Head of TaxSchool of AccountancyUniversity of the Witwatersrandwww.wits.ac.za/accountancy
Posted: 09 March 2017