IIG Insights: Unmasking SA’s Real Tax Rate

Speaker
Name: Johan Heydenrych

On the 8^th of July GIFS sponsored a webinar on Unmarking SA’s Real Tax Rate. This was an in-depth discussion that unveils the real tax rate in South Africa as well as key challenges within our government and tax system.

Johan has more than three decades of experience in Corporate Tax, Value-added Tax, Tax Accounting, Tax Process and Technology, Tax Due Diligences, Restructure and mergers, two decades of which as Director of Tax Services at KPMG.

Nationally sought-after for his extensive insights and experience, Johan regularly presents tax courses to clients and organisations with a specific focus on Income Tax, VAT and Employment Taxes.

Johan joined the Kreston SA team in December 2020 as a director and shareholder in Kreston Advisory Pretoria (Pty) Ltd. He is also a member of the Think-Tax network of independent tax professionals.

Dr Kershen Pillay, CEO of the Graduate Institute of Financial Sciences (GIFS), is regarded as a foremost thought-leader, and an education trailblazer and visionary. He is deeply committed to mobilising the power of education to create a better Africa for others to inherit. Kershen is an astute innovator who is nationally acknowledged and respected for his consistent efforts to level the socio-economic playing fields by making quality education available to all.

As a result, he was named the TYI Top 100 Young African Innovator of 2018. The accolade is one of many commendations from business and industry bodies that recognise Kershen’s contributions to business, his foresight and vision, his achievements, as well as his future-fit approach to education.

Dr Kershen Pillay navigated the session and gave feedback on the attendees’ questions and comments as the session progressed. He posed the following 3 key questions to Speaker Mr Johan Heydenrych: –

1. What percentage of income do you think is fair for the average SA taxpayer to endure, to have the standard of living that is envisioned in the constitution?

In his response, Johan included the types of taxes we pay in SA. Information on corporate tax rates around the world and the importance of corporate income tax. The session also included some interesting statistics with reference to revenue generated from tax collections and outcomes stemming from the auditor generals report at national and provincial levels. He also noted the problems SA is facing (i.e., decline in the corporate tax contributions, lack of sufficiently active personal income tax contributors and high level of fruitless and wasteful expenditures at the government level). The speaker also gave insight into ways these problems can be addressed.

Dr Kershen further highlighted the impact Covid-19 has had on the decline of revenue collection and a discussion was held on how we as SA citizens should hold government accountable by using our voices as a democratic society. He further made comments on the sentiment that foreign investors were deterred due to the high level of tax rates imposed and discussion points below were noted.

In answering the question posed, the following was noted: –

• Our corporate tax rate and the VAT rate is comparable to similar countries in the world
• The Personal Income Tax Rates are high and the top bracket of 45% is effective from too low levels. At a minimum, I would like to see the brackets being adjusted accordingly. This can however only be done if the NUMBER of contributors to the PIT system can be increased. To do that, one must stimulate economic growth and take away barriers for businesses to flourish.
• I would like to see the public money being applied more efficiently and effectively with a focus on achieving economic activity. The findings of the AGSA should be taken seriously.
• For many persons, it is simply too difficult to “do business” in South Africa
  • Many concerns are labour related.
  • The ability to do the work or to provide a reliable product at an affordable price weighs too little in many procurement processes. The procurement criteria are often overly weighed towards issues that have nothing to do with the product that must be delivered. This applies to both the Public and Private sectors.
• I have very seldom seen foreign investors not investing in South Africa due to our system of taxation. Their concerns are mainly driven by non-tax issues such as:
  • Safety and security
  • Reliable electricity and municipal infrastructure
  • Nationalisation of resources

Whilst Johan highlighted the world-class tax system SA had and the fact that most citizens are tax compliant, he stressed the obligation government had to use the monies responsibly.

However, one of the major concerns by most who attended the session centred around government corruption and misuse of tax monies. It was further noted that strides had been made particularly in the SARS department to get to the current high levels of efficiency but the challenge is that most other government departments have not reached this level yet. This was substantiated by the statistics shown in the Auditor General’s report.

2. What would be the impact of suspending, at the very least VAT, during hyper-inflationary times or periods of national disaster to help the common person afford to live off a basic income?

The session looked to review global tax trends in times of national disaster. Highlighting, that tax packages have evolved, with an increasing focus on recovery-oriented stimulus measures to supplement the crisis relief provisions introduced in the early stages of the response to the pandemic. Countries started introducing recovery-oriented tax measures, including corporate tax incentives for investment, reduced VAT rates targeted at hard-hit sectors. In most countries, these stimulus measures have co-existed with prolonged relief measures. Another significant trend observed over the last year is that an increasing number of countries have introduced or announced new tax increases. The scope and scale of tax policy packages have also reflected countries’ fiscal space and their ability to rely on central bank support. The reality in SA is that Government needs more money to address the pandemic and not less money. Where will this come from? Further, Government does not have much space to provide fiscal support. In fact, Government itself is in desperate need of funds. Our system is heavily reliant on PIT. This is the one area that is under pressure during the Covid-19 pandemic.

Further discussion was held on the impact of raising VAT and what this would mean to ordinary South Africans in an already income stressed environment. Johan noted the only real solution government has is to make a concerted effort toward the creation of economic activity.

3. What could be done to balance the effect of import duties levied to invigorate local trade while ensuring supply meets demand?

• Unfortunately, there is not much space to manoeuvre when import duties are concerned. Import duties are generally determined with regards to Trade Agreements between countries/trade regions.
• Import Duties, therefore, varies depending on the country of origin of the product.
• An increase in import duties by South Africa on products imported from a particular country is likely to lead to retaliation by that country. This may hurt exports to that country. (i.e. “trade war”)
• One should not underestimate the job creation and economic activity that is created by imports and the onward distribution of such products.
• The reduced impact on the environment of imports should be balanced with increased jobs created by local manufacturing.
• The focus must be to make South Africa a viable alternative for production with a stable workforce and reliable infrastructure. Manipulation of market forces through a tax system is in my opinion not sustainable.

To conclude the session, Dr Kershen summarised the critical points of holding government accountable for the tax we pay. Johan held that in addition to holding government accountable, he echoed his sentiments that we are all part of this SA family and “everybody’s success is everybody’s success” and moving forward that is the way we should act.

Our MC Tshepiso thanked Johan and Dr Kershen for their time and insights on SA’s Real Tax Rate and the effects on our country. She ended the session by thanking GIFS for their sponsorship of this very insightful session.

The article was written by Suren Kasil

This Insights Session was Powered by the Graduate Institute of Financial Sciences