Companies and wealthy South Africans should pay more tax: think tank

Rising debt must be addressed by raising more resources from wealthy and high-income individuals and large profitable companies, which is also essential to reduce inequality, says the Budget Justice Coalition (BJC) – a think tank representing a number of organisations including Equal Education, Section 27, and the Institute for Economic Justice.

The BJC submitted its views in a written response to Finance minister Tito Mboweni’s Medium Term Budget Policy Statement (MTBPS) this week.

For the February 2021 budget, National Treasury needs to look to more progressive taxation to raise additional revenues, it said. In the context of the current economic recession, the level of taxes on income, personal and corporates would be reduced.

“This necessitates looking to tax historically accrued income, through the implementation of a progressive net wealth tax. In the medium-term, increasing taxes on high net worth individuals and increased capacity for SARS to ensure tax compliance will be essential,” the BJC said.

The group said that there are thousands of South Africans who have net assets of $1 million or more, and 2,070 South Africans who have net assets of $10 million or more.

This shows that the country still has large sources of wealth, despite a weak rand and the ongoing emigration of the very rich – with approximately 3,000 HNWI having left South Africa over the past decade, it said.

“The implementation of a progressive net wealth tax would be able to raise much-needed revenue as well as start to redistribute some of the wealth from the very rich to the poor.

“Moreover, there are a number of high earning individuals who go completely untaxed. For instance, SARS has indicated that 20,000 individuals with earnings of more than R1.5 million go completely untaxed each year.”

Furthermore, besides South Africa historically having much higher personal income tax and corporate income tax rates, the effective personal income tax rates have also declined substantially since the late 1990s, the BJC said.

If from an individual country perspective this makes sense – a reduced tax rate means less tax revenue and financial resources, but this is compensated by a growing corporate tax base linked to new investments – from a global perspective, this has fed a worldwide tax war, it said.

“This has led countries to sacrifice critical tax revenue that could boost their revenues to be directed towards advancing socio-economic rights. This is a massive loss for public finances globally, and for South Africa in particular.”

The group argued that if the rate of the Corporate Income Tax was still at its previous levels of 50% in 1994 or 35% in 1999, an additional R410 billion, (or R287 billion) could have been collected for the 2019/20 budget year.

“Since there are efforts currently underway at the OECD under the BEPS multi-stakeholder engagement to implement a global minimum corporate tax rate, South Africa must be at the forefront of this battle to push for such a rate to be as ambitious as possible.

“A global minimum tax rate for corporations of 20 to 25% seems to be a progressive starting point that could be increased over time.”

Read: Government wants to raise R40 billion through taxes – but where is it going to come from?

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