Davis Committee to start a new tax review era

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“The turnover tax regime will be amended to further reduce the tax burden on micro-enterprises, [and] consideration is being given to replacing the graduated tax structure for small business corporations with a refundable tax compliance credit,” said Minister of Finance Pravin Gordhan during his budgetary address in parliament on Wednesday.

Since the last tax system review, South Africa’s tax system has significantly changed, including the establishment of the South African Revenue Service, broadening of the tax base and lowering of marginal tax rates. The Davis Tax Comittee is now tasked with reviewing the entire tax system. 

“[The budget is] very clearly aimed at insuring that we broaden the tax base in South Africa, and making the cost of complying with our tax legislation lower. Certainly the income tax act, as it stands today, is a fairly complicated set of legislation,” Ben-Schoeman Geldenhuys, director of corporate tax at KPMG, told CNBC Africa.

“For small businesses [and] micro-businesses, it’s most certainly something that they won’t get their minds around in general, and hence this initiative is definitely to be welcomed.”

Geldenhuys added that the successful broadening of the tax base would not only have positive implications for the tax payer but also for the entire wellbeing of the economy.  Simplifying our current tax structure to the layman will however be instrumental in their compliance with it.

“I think the simplification of the current tax structure is going to be something that the Davis Committee will be looking at. We’ve had a lot of legislation announced in the budget, and a lot of legislation coming through in previous years, [with] lots of complex changes aimed at anti-avoidance in particular, which are lengthy and difficult to navigate your way through,” Andrew Wellsted, head of tax at Norton Rose Fulbright, explained.

“This year, there are certainly some technical amendments but there is not the sheer volume that we’ve been anticipating. It’s certainly a welcome breather for the tax-paying community and the tax-practitioner community, because the tax changes that they have mentioned are actually focusing on certain technical issues.”

There were however aspects that the budget failed to shed light on, including how much would be allocated towards the National Health Insurance scheme and how the defence budgetary expenditure will be spent.

Since South Africa’s involvement in the Central African Republic, national treasury expenditure allocation to such activity is now more than ever of particular importance.

“At the end of the day, [the Davis Committee] needs to gauge the changes they make in the context of the political landscape. It’s job is to look at the entire tax landscape of South Africa, also take into consideration international norms, and come up with a view which helps us with a more balanced approach to managing tax,” said Gerard Soverall, tax partner at PricewaterhouseCoopers.

“That’s everything from rates to instances of tax, to administrative burden, and I think it would’ve been probably the wrong thing to do to pre-empt the outcome of that committee’s work.”

Soverall added that working with the current frameworks and tax regimes rather than new ones would aslso be far better in the long-run for the economy and the country.

“I think we’ve got to wait for the Davis committee to actually come out with what its report is going to be, and then I think [they’ll] probably look at implementing that,” said Rob Stretch, director of general and capital gains tax at Ernst & Young.

“Overall I’d think that there’s got to be a balance between the various taxes, between your direct personal taxes on individuals and corporates, and your VAT collections and also your other indirect taxes. One’s also got to be realistic that the taxes that are introduced or the balance of the taxes need to be [in] an investor-friendly environment.”