Functioning Better Than Many Supposed

By Global Tax Weekly

It is to South Africa I turn to next. In 2013, the Government set up a committee of tax experts to review the country’s tax system. The overarching aim of this exercise is — in the words of the Government — to “assess our tax policy framework and its role in supporting the objectives of inclusive growth, employment, development, and fiscal sustainability.” It’s a sentence that could have been lifted word-for-word from an OECD report on tax-to-GDP ratios. But it’s actually fairly easy to translate this official-speak: for phrases like “inclusive growth” and “fiscal sustainability,” read “more spending and more tax.” Being the cynic that I am, I suspect that the Government probably set up the Davis Tax Committee, as it has come to be known, in the hope that its conclusions would help to justify its argument for certain tax rises, particularly to mining taxes and VAT. The IMF was also commissioned to write a parallel report on the South African tax system, presumably to hammer home the need for more “inclusive growth” and “fiscal sustainability.” The Davis Committee is refreshingly off-message however, concluding recently that there is no need for mining taxes or the VAT to be increased. Predictably, the IMF sees scope for more revenue to be raised from the resources sector. Given that the contribution of mining taxes has fallen to just 2 percent of overall revenues, this might not be such a bad thing after all; it would prevent the need for income tax and VAT increases, which would have a more widespread impact on the economy. The Davis Committee’s conclusions also signal that South Africa’s tax system is actually functioning better than many supposed. I wonder if the Government will see it that way. Usually the recommendations of tax reform panels are ignored by governments. This could prove to be an exception to that rule!

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