Matthew Lester: Tax talk


Tax collections are going to come up far short of the 2009-10 budget of R700-billion. But who is going to have to carry the can?

We need to start considering what fundamental changes could be made to the Income Tax Act that may bring in some meaningful money without completely stuffing up the taxpayer.

First, we can exclude corporate taxes from the debate. It has taken 10 years to create something like an internationally competitive tax regime. Only complete plonkers would go back on that now. If anything, we should be accelerating the implementation of dividend tax to replace secondary tax on companies (STC). And that will cost another R5-billion in lost tax collections.

Forget about increasing VAT — we don’t need a national strike. And anything more than inflationary adjustment to sin taxes, customs and excise and the fuel levy just is not going to happen either.

Bravo Matthew! You have just excluded about two-thirds of the tax base from making any form of contribution. That’s the stark reality of tax; when times get tough it all lands on the individual taxpayer. And now, post-Polokwane, we are not about to nail the lower end of the tax spectrum, are we? So we have to go back to the fundamental principles of Rob the Rich to feed the Poor.
I think we are starting to look at increasing super tax beyond 40%. Vavi and Malema will love it. And I don’t think the Shaiks, Sexwale or Ramaphosa will raise too much opposition.
Perhaps we should look at a fundamental change to the tax brackets with the introduction of a new super-super tax bracket. So we would leave the 40% rate at somewhere around R525000. But then only implement 42% from, say, R1-million.
And then there is the great mystery of capital gains tax. Like crime rates, we still don’t really have any CGT statistics because the collections are hidden within individual tax receipts. We need to know more.

Maybe we could cut a deal on CGT and other taxes. Perhaps we could do away with death duty and donations tax and all the rocket science that goes with them.
That would not cost more than R1-billion a year. And this could easily be replaced by increasing the CGT inclusion rates to pay a bit more tax on windfalls during our lifetime.
We could live in the comfort that our estates won’t get shredded by the taxman. And SARS would benefit by getting more, earlier.

The downside is that we would have to retrench the rafts of nerds who make a living out of trust administration. Jokes aside, there would still be plenty for them to do in estate planning, they just would no longer have estate duty as the “unique selling point”.
Perhaps those who could no longer “hack it” could relaunch their careers by concentrating on small business tax compliance. That’s a bit dull, but that’s tax!


Lester is professor of taxation studies at Rhodes University, Grahamstown