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Pravin Gordhan reveals details of the Tax Review Committee

by , 18 July 2013
Finance Minister Pravin Gordhan has announced members of the Tax Review Committee as well as the committee's terms of reference. The minister's announcement is in line with a declaration he made during his 2013/14 budget speech that government will initiate a tax review to assess the country's tax policy framework and its role in supporting inclusive growth, employment, development and fiscal sustainability.

According to Gordhan's statement, the committee will evaluate the South African tax system against the international tax trends, principles and practices, as well as recent international initiatives to improve tax compliance and deal with tax base erosion.

Judge Dennis Davis will chair the review committee. The other members are Professor Annet Wanyana Oguttu, Professor Matthew Lester, Professor Ingrid Woolard, Ms. Nara Monkam, Ms. Tania Ajam, Professor Nirupa Padia and Mr Vuyo Jack

When it's done with its work, the committee will make recommendations to Gordhan. 'Any tax proposals arising from these recommendations will be announced as part of the normal budget and compensate legislative processes,' said Gordhan.

The dates for when the committee will submit interim reports and a final report which will be published will be determined after consultation between the committee and the minister.

In his statement, Gordhan said the following aspects would receive specific attention from the committee:

#1: An examination of the overall tax base and tax burden including the appropriate tax mix between: direct taxes, indirect taxes, provincial and local taxes. An analysis of the sustainability in the long-run of the overall tax-to-GDP ratio and the tax-to-GDP ratio for each of the three major tax instruments, Personal Income Tax (PIT), Corporate Income Tax (CIT) and VAT should be undertaken.

This will be done to establish whether the current tax structure is able to generate sufficient and sustainable revenues to fund government's current and future expenditure priorities.

#2: The impact of the tax system in the promotion of small and medium size businesses, including analysis of tax compliance costs, the possible further streamlining of tax administration and simplification of tax legislation.

#3: A review of the corporate tax system with special reference to:

  • The efficiency of the corporate income tax structure;
  • Tax avoidance (base erosion, income splitting and profit shifting, including the tax bias in favour of debt financing);
  • Tax incentives to promote developmental objectives; and
  • The average (and marginal) effective corporate income tax rates in the various sectors of the economy.

#4: As noted in the 2013 Budget Review, the committee will consider:

  • Whether the current mining tax regime is appropriate, taking account of the agreement between Government, Labour and Business to ensure that the mining sector contributes to growth and job creation, remains a competitive investment proposition and all role players contribute to better working and living conditions; and
  • The challenges facing the mining sector, including low commodity prices, rising costs, falling outputs and declining margins, as well as to its current contribution to tax revenues.
  • Various elements of taxation within the financial sector, namely the taxation regime of long term insurers, the taxation of hedge funds, the taxation of various innovative financial instruments and the Vat treatment of financial services and VAT apportionment within the financial sector.

#5: Value added tax with specific reference to efficiency and equity. In this examination, the advisability and effectiveness of dual rates, zero rating and exemptions must be considered.

#6: The impact of e-commerce (especially the use of digital delivery of goods and services) upon the integrity of the tax base, in particular upon value added tax and corporate income tax revenues.

#7: The progressivity of the tax system and the role and continued relevance of estate duty to support a more equitable and progressive tax system. The interaction between capital gains tax and the estate duty should be considered.

#8: An evaluation of proposals to fund, for example, the proposed National Health Insurance (NHI) and long term infrastructure projects to boost the growth potential of this economy.

#9: An evaluation of the legislative process with a view to both enhancing simplicity and ensuring the protection of the tax base and to recommend how to improve the current process.

The last review of South Africa's tax system was conducted in 1994 by The Katz Commission.

It's advisable that you watch the outcome of the tax review as it could result in changes to the way you pay tax.

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