Occasional Paper 1: Domestic Resource Mobilisation Tax Study (2012)

domesticresourcemobilisationtax study 2012

abbreviations 2

executivesummary 3

domesticresourcemobilisation:anoverview 5

1.0 introduction 5 1.1 Theobjectivesofthestudy 5

1.2 Thevalue-addofDomesticResourceMobilisationinSouthAfrica 5

2.0 theimportanceandroleoftaxesinthesouthafricaneconomy 6 2.1 Introduction 6

2.2 Theroleoftaxinalleviatingpovertyandinequalities 6

3.0 analysisofthetaxinstruments/sourcesinsouthafrica 6 3.1 Introduction 6

3.2 TaxrevenuecollectioninSouthAfrica 7

Figure1:Taxrevenuesource2006/07 8

Figure2:Taxrevenuesource2010/11 8

3.3 TheanalysisofthetaxinstrumenttrendsinSouthAfrica 9

3.3.1 PersonalIncomeTax(PIT) 9

Figure3:Distributionoftaxpayers(individuals’percentage)2007–2010 9

Figure4:Distributionoftaxpayersoverselectedtaxableincome2007–2010 10

3.3.2 CompanyIncomeTax(CIT) 10

3.3.3 CompanyIncomeTaxbySector 11

Figure5:Taxassessedbysector(allcompanies),2007 11

Figure6:Taxassessedbysector(allcompanies),2010 12

3.3.4 ValueAddedTax(VAT) 12

4.0 Highnetworthindividuals(Hnwis) 13

sectoranalysis 14

1.0 miningsector 14 1.1 Overviewandimportanceofthesectorintheeconomy 14

1.2 Sector-specifictaxregimeissues 14

GoldIndustryTaxation 15

VAT 15

1.3 Analysisofthetaxregime 15

EffectiveTaxRate 15

ResourcesRentTax 16

2.0 Financialsector 16 2.1 Overviewandimportanceofthesectorintheeconomy 16

VAT 17

3.0 automobilesector 18 3.1 Overviewandimportanceofthesectorintheeconomy 18

3.2 Sector-specifictaxregimeissues 19

CASESTUDY–VOLKSWAGENSOUTHAFRICA 20

VolkswagenGroupbackground 20

Regionalcomparativeanalysis 20

Figure7:WorldcarmarketvsVolkswagenGroupdeliveriestocustomers,January2011–June2012 20

Figure8:Growthinpercentagesanddeliveriesofpassengerandlightcommercialvehiclestocustomersbyregion,2010–2011 21

VolkswagenGroupSouthAfrica 23

SalesPerformance 23

conclusionandrecommendations 25

reFerences 27

contents

anc AfricanNationalCongress

aPdP AutomotiveProduction

DevelopmentProgramme

cbu CompletelyBuiltUnit

cGt CapitalGainsTax

cit CorporateIncomeTax

drm DomesticResourceMobilisation

Fdi ForeignDirectInvestment

Gci GlobalCompetitiveIndex

GdP GrossDomesticProduct

Gst GeneralSalesTax

Hnwi HighNetWorthIndividual

ircc ImportRebateCreditCertificate

itd InternationalTaxDialogue

abbreviations

mdG MillenniumDevelopmentGoal

metr MarginalEffectiveTaxRate

midP MotorIndustryDevelopmentProgramme

mnc MultinationalCompanies

nGo Non-GovernmentalOrganisation

oi OxfamInternational

Paa ProductiveAssetAllowance

Pit PersonalIncomeTax

sacu SouthernAfricanCustomsUnion

sars SouthAfricanRevenueService

savca SouthAfricanVentureCapitalAssociation

sbc SmallBusinessCorporation

stc SecondaryTaxonCompanies

vat ValueAddedTax

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executivesummary

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Developingcountriesfacechallengesincludingwidespreadpoverty,everincreasingunemploymentandwideninginequalities.SouthAfrica’sexperienceofthesechallengeshasgivenriseinthepost-Apartheideratoanexaminationofthenatureanddynamismofincomedistributionandthefactorsthatdriveit;theroleoffiscalpolicyasaredistributivetoolandtheprogressivityoftaxandtransferpolicieshavecomeintosharpfocus.

Thefailurebyanystatetotaxadequatelyisnotonlyanindicatorof,butalsoformsthebasisfor,underdevelopment.Thereforedifficultiesincollectingtaxesaregenerallyareflectionofaweakeconomyandanineffectivegovernment.Mostimportantly,ifgovernmentsdonothaveadequatetaxrevenuestheyarethenforcedtorelyonexternalsourcesofsupporttoprovidepublicservices.

Therehasbeensomeconsensusamongpolicymakersandscholarsthatthemajorcontributionoftaxpolicyasaredistributivetoolshouldbetoraisetherevenuesthatareessentialtocorrectinghorizontalinequities.

Taxesfundpublicinfrastructureandfacilitatesocialprogressaswellaseconomicdevelopment.Governmentactivitiesreliantontaxrevenuesincludethefundingofessentialpublicservicessuchasthepoliceservices,defenceforce,justicesystem,healthservices,welfare,socialservices,andeducationandtraining.

InSouthAfrica,taxesareadministeredbytheSouthAfricanRevenueService(SARS)andincludePersonalIncomeTax(PIT)chargedat40%forthetoptaxbracket,CorporateIncomeTax(CIT)at28%,WithholdingTaxonDividendsat15%andValueAddedTax(VAT)at14%.The2010/11taxrevenuecontributionsshowthatPITcontributed34%,VAT27.2%andCIT20%tothenationalrevenue–thusthePITshoulderedalargershareofthetotaltaxburdencomparedtoVATandCIT.

Regardingthetaxburden,theanalysisshowsthatthehighesttaxableincomegrouphastheleastnumberoftaxpayersbuttheybringinasubstantialamountoftaxableincomecomparedwiththeothergroups.Thismaybebecausetheirtaxrateishigherthantheotherincomegroupsandthereforetheybearalargershareofthetotaltaxburdenincomparativeterms.However,analternativeexplanationisthatthisgrouphassubstantiallyhigherper-capitaincomes.

Thefinancialsector,consistingofinsurance,realestateandbusinessservices,iscontributingmoretotheCITandisthereforebearingmoretaxburdencomparedtotheothersectors.

HighNetWorthIndividuals(HNWIs),individualswhoareeitherearningmorethanR7millionperannumorhaveassetsofmorethanR75million,arenotproperlycapturedbySARSandthereforenotproperlytaxed.AninvestigationbySARShasidentifiedapproximately9300suchindividualsinSouthAfricawhoarenotcomplianttaxpayers,andacollaborationbetweenbanksandSARSrevealedthattheremayactuallybeasmanyas20000.Worthnotingisthefactthatwhile2300ofthe9300identifiedbySARSareontheirregistertheyarenottaxcompliant.Theremainingbalanceof7000arenotevenregisteredwithSARS.OnlyaverysmallfractionofHNWIsinSouthAfrica,about360individuals,areregisteredwithSARSandtaxcompliant.ThelosstothefiscusduetothefailuretotaxHNWIsisestimatedatR48billioninpotentialtaxrevenue.Thisisasubstantialamountofmoneythatcouldbechannelledtothedevelopmentofthecountry.

Asectoralanalysisrevealsthatminingcompaniespaythenormal28%CorporateIncomeTax.However,mining,includinggoldanduraniumcompaniesaretreateddifferently.TheMarginalEffectiveTaxRate(METR)oncapitalfortheminingsectorisverylowbecausecapitalexpendituresrelatedtominingareexemptedfromtax.Thereiscurrentlynounambiguousempiricalevidencetosupportthenotionthatthesecapitalequipmenttax

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incentivesarebenefitingtheminingsectorinSouthAfrica.Therecommendationtherefore,inthisregard,istograduallyremovethesecapitalequipmenttaxincentivesinorderfreedomesticresourcesfordevelopmentalinitiatives.

ThefinancialsectorislargelyexemptedfromVATandisonlysubjecttostandardtaxtreatmentwithnoparticularsectorspecificincentives.WithanoverallweightedaverageMETRoncapitalofjustunder30%,thefinancialsectorbearsoneofthehighestmarginaltaxburdensoncapital.Thissectoralsohasmanysophisticatedinstruments.ThepropertaxingoftheseinstrumentsisachallengetoSARSbecausetherevenueserviceispresentlylaggingbehindintermsofproperlyunderstandingtheinstruments’structuringandfunctioning.TherecommendationisthatSARSshouldembarkonaneducationalendeavourthatwillenablethemtoproperlyunderstandtheseinstrumentsinordertoappropriatelytaxthissectorandmobilisemoredomesticresourcesfordevelopment.

TheautomotiveindustryreceivessignificantgovernmentsupportthroughasetofincentivesknownastheMotorIndustryDevelopmentProgramme(MIDP).AlthoughtheSouthAfricangovernmenthasbeenreducingitssupportinsubsequentrevisionsoftheMIDP,theincentivesstillremainsubstantial.Thissectorisexceptionallysuccessfulbecauseitisdependentonthegenerousincentiveschemeprovidedbygovernment.Itbasicallyreliesheavilyonbothimportedcapitalandimportedinputs.However,itisimportanttonotethattheeffectivenessofthetaxincentivesfadesintime,reaffirmingthetheoreticallyfoundedhypothesisthattaxincentivesmayaffectsomebusinessdecisionsparticularlyintheshortrun,buttheyarenotaprimaryconsiderationforinvestorsinthelongrun.Itisthereforerecommendedthatthecurrentsetoftaxincentivesforthissectorbegraduallyeliminatedinordertofreeresourcesforotherdevelopmentalneeds.

1.0 introduction

Thepost-apartheiderainSouthAfricahasseenthecountrybattlingwiththetripledevelopmentalchallengesofwidespreadpoverty,increasingunemploymentandwideninginequalities.Thesechallengeshavegivenrisetointerestintheexaminationofthenatureanddynamismofincomedistributionandthefactorsunderlyingit.Moreimportantlythoughthesechallengeshavebroughtintosharpfocustheroleoffiscalpolicyasaredistributivetoolandtheprogressivityoftaxandtransferpolicies.

Thisfocusontheinteractionbetweentheprogressivityoftax,transferpoliciesandincomedistributionhasbeennecessitatedbydevelopmentalissuesinSouthAfrica–encompassingtaxincidence,governance,taxadministration,taxevasion,thepredominanceofindirecttax,andcapitalandwealthtax.

TherehasbeensomeconsensusamongSouthAfricanpolicymakersandscholarsthatthemajorcontributionoftaxpolicyasaredistributivetoolshouldbetoraisetherevenuesessentialforcorrectinghorizontalinequities.Therefore,taxsystemsshouldbecharacterisedbybroadbases,limitedexemptionsandlowrates.

1.1theobjectivesofthestudy

ThemainobjectiveofthestudyistoevaluatethetaxationandexpenditureregimesinSouthAfrica,andtoinformthedesignofdomesticresourcemobilisationingovernmentprogramminginthefuture.Thestudyaimstocontributetoamodeloftaxationthatstrengthensthestate’scapacitytofinancetheprovisionofessentialservices.

Specifically,thestudyaims:i. TodeterminetheimportanceandtheroleoftaxesintheSouthAfricaneconomyii. ToanalysethetaxinstrumentsortaxsourcesinSouthAfricaiii. ToassesstheeffectivetaxburdeninSouthAfricaiv. ToperformananalysisofHighNetWorthIndividuals’taxpracticesv. Toanalysethetaxregimeinthreedifferentsectors

1.2thevalue-addofdomesticresourcemobilisationinsouthafrica

InSouthAfrica,thevalue-addofdomesticresourcemobilisationisrealisedinthefinancingofgovernmentprojectstocoverbasicessentialpublicservicessuchaspovertyalleviation,thereductionintherateofunemployment,improvementintheeducationandhealthsystems,ruraldevelopment,infrastructuredevelopment,andcombatingcrime.

TherearefourmainsourcesofgovernmentrevenueinSouthAfrica:taxes,servicecharges,grantsandloans.Inthe2009/10fiscalyear,taxesaccountedfor81.5%oftotalgovernmentrevenue(Durham&Verwey,2012).Inrealterms,SouthAfricantaxrevenuehassurgedbyapproximately70%overtheperiodspanning2000/01–2010/11.Thismeansthatinabsoluteterms,theSouthAfricanbudgethassignificantlymoreresourcesavailableforallocationthanadecadeago.Giventhattherateofresourcegrowthhassurpassedthepopulationgrowthrate,thebudgethasmorerevenueavailablepercapita,thanitdidtenyearsago(Durham&Verwey,2012).

SouthAfricacontinuestoaddressthelegacyofapartheidwhichpresenteddevelopmentalchallengessuchasinadequateinfrastructure,widespreadpovertyandinequality,structuralunemploymentandaslowpaceoftransformation.Inlinewiththisobjective,the2012NationalBudgetproposalsfocusondevelopinginfrastructure,supportingjobcreationandimprovinglocalgovernmentservices.Education,healthcareandsocialprotectioncontinuetoaccountforthelargestshareofgovernmentresources,withspendingonthesefunctionalareasgrowinginaveragerealtermsby1%,1.5%and3%respectively.

domesticresourcemobilisation:anoverview

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ForSouthAfricatosustainablyincreaseitsspendingoneducation,healthcareandsocialprotectionoverthedecadestocome,domesticresourcemobilisationwillbecrucial.Mobilisingdomesticresourceswillensurecountercyclicality,debtsustainabilityandintergenerationalequity.

2.0 tHeimPortanceandroleoFtaxes intHesoutHaFricaneconomy

2.1introduction

Taxesfundpublicinfrastructurewhichiscrucialinthedeliveryofpublicservices.Theyalsofacilitatesocialprogressandeconomicdevelopment.Throughtaxexemptionsomeindustriesmaybeabletoinvestmoreandthereforeacceleratetheirowngrowthandultimatelynationalgrowth.Taxesmayalsobeusedtodiscourageuseofcertainproductsbyimposingheaviercharges,suchassintaxeswhichareimposedontobaccoproducts.Localindustriesmaybeprotectedthroughtaxationbyimposinghighcustomsdutiesonforeigngoods.Moreover,taxationcanbeusedtoreduceinequalitiesinwealthandincomebyimposingprogressivelyhighertaxesonhigherincomegroupsasinthecaseofestateandincometax.

2.2theroleoftaxinalleviatingpovertyandinequalities

Theroleoftaxinthealleviationofpovertyandinequalitiesiscloselylinkedtotheconceptofsocialsecurity.Socialsecurityreferstotheactionprogramsofthegovernmentintendedtopromotethewelfareofthepopulationthroughassistancemeasuresguaranteeingaccesstosufficientresourcesforfoodandshelter.Thesemeasures,suchastheprovisionofsocialgrants,aimtopromotehealthandwellbeingforthepopulationatlargeandinparticularforpotentiallyvulnerablesegmentssuchaschildren,theelderly,thesickandtheunemployed.

3.0 analysisoFtHetaxinstruments/sources insoutHaFrica

3.1introduction

Asdefinedearlierinthestudy,taxesareessentialforthefinancingofgovernmentactivities,butatthesametime,theyshouldbesetandadministeredtobeasgrowthenablingaspossible.TherevenueraisingauthoritiesinSouthAfricaaretheNationalTreasuryresponsibleforsettingthetaxpolicy1andSARSwhichadministersthetaxpolicy.

Inprovidingtherevenuetofundallgovernmentinitiatives,SARSplaysavitalenablingroleforgovernmentservicedeliverythatenhanceseconomicgrowthandsocialdevelopment,whilesupportinggovernment’sintegrationintotheglobaleconomy.Itisthereforenecessarytoensuregoodgovernancethroughouttheagencyandobservetheprinciplesofrelevantgoodpracticewithintheparametersofpublicsectorlegislation.Generally,administrativereformsthroughmodernisationprogrammeshavecontributedmoretothespreadofthetaxburden,andhaveimprovedtheabilityoftherevenueservicetodetectanddeternon-compliance,therebypromotingfiscalrewardsandimprovingaccuracyofprocessingandservicetotaxpayers(Ramalho,2007).

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(1) Seewww.sars.gov.zafordetailedinformationontaxpolicyinSouthAfrica.

Thebasicgoalofanytaxsystemincludesraisingrevenue,equityandfreedomfromeconomicburden.TheSouthAfricanincometaxsystemisacombinationofaprogressiveandproportionalrate.Inanincreasinglyglobaleconomy,itisalsoimportantthatataxsystembecompetitive,butwithoutcontributingtounfavourabletaxconsequencesby,forinstance,discouragingtaxcompliance.TaxadministrationinSouthAfricafunctionsinacomplexandfastchangingenvironment.Anewrangeoffactors,arisingfromthelocal,regionalandinternationalcontexts,createanimpactonthecapacityofgovernmenttocollecttaxesanddevelopitseconomy.Similarly,globalisation,tradeliberalisation,theestablishmentofregionaleconomicandpoliticalblocks,therapidmovementofcapitalacrossnationalboundaries,innovationsintelecommunicationsandtechnologyingeneralallimpactongovernment’sabilitytogeneraterevenue(Gelbetal.,2007).However,atthesametime,thereisagreaterneedtoraiserevenueforpublicspending–notonlytocushionthefinancialdifficultiesexperiencedbythepublic,butalsotosustaineconomicgrowth.

Acommitmenttoasoundincometaxsystemcontributestowardwellinformedpolicyformulationandeffectivefiscalandeconomicpolicydecisionsandalsofacilitatesamoreeffectiveresponsetochangingeconomicconditions,therebyhelpingtoreducetheincidenceandseverityofeconomicandfinancialcrises(NationalTreasury,2009).

3.2taxrevenuecollectioninsouthafrica

Taxesarethemostimportantsourceofgovernmentrevenue.ThethreemainsourcesofnationaltaxrevenuearePersonalIncomeTax(PIT),CompanyIncomeTax(CIT),andValueAddedTax(VAT).Robusteconomicgrowthduringthemid-2000sandimprovedtaxcomplianceandadministrationhaveresultedinanupwardtrendintaxrevenueoverthelasttenyears.However,the2007/08globalfinancialcrisisnegativelyaffectedtaxrevenues.TheprojectionsbytheNationalTreasuryreflectarecoveryoftaxrevenuesinthemediumterm,from24.7%to25.5%ofGDPin2011/12to2013/14respectively(NationalTreasury,2012).

SARSwasresponsibleforthecollectionof98%ofthetotalbudgetrevenueofgovernmentor88.9%oftheconsolidatedrevenueofgovernment(whichincludesnon-taxrevenue,revenuefromprovinces,socialsecurityandselectedpublicentitiesaswellastheSouthernAfricanCustomsUnion(SACU)payments)in2010/11(NationalTreasury,2011).

SouthAfricahashadthebenefitofarevenueandcustomsadministrationwithanexceptionalrecordofgrowingrevenueyieldduringperiodsofeithereconomicgrowthorcontraction.

ThetaxsysteminSouthAfricaisresidence-based.Thisimpliesthatresidentsare,subjecttocertainexclusions,taxedontheirworldwideincomeirrespectiveofwheretheirincomewasearned.Non-residentsare,however,taxedontheirincomefromaSouthAfricansource.ForeigntaxesarecreditedagainstSouthAfricantaxpayableonforeignincomeandmaybesubjecttoanyprovisionsintaxtreatiesthatSouthAfricahasinplacewithothercountries(NationalTreasury,2011).

PIT,CITandVATcontributeapproximately80%oftotaltaxrevenue,whilethefuellevy,exciseandcustomsdutiesaccountforaround12%andothertaxesareresponsibleforthebalance.Themaindriversoftheupwardmovementinnominaltaxrevenueincludeamongotherthingsinflation,highcommodityprices,highwagesettlements,increasesinthevalueofimports,privateconsumptionintheeconomyaswellasimprovementsintaxadministrationandtaxcompliance(NationalTreasury,2011).

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Figure1:taxrevenuesource2006/07

CustomsDuties(5%)

SecondaryTaxonCompanies(3%)

FuelLevy(5%)

SpecificExciseDuties(3%)

ValueAddedTax(27%)

Other(5%)

PersonalIncomeTax(28%)

CorporateIncomeTax(24%)

Figure1belowshowsthatPITcontributed28%tototaltaxrevenuein2006/07,VAT27%andCIT24%.Thismeansthatin2006/07PITpayersshoulderedalargershareofthetotaltaxburdencomparedtoVATandCIT(NationalTreasury,2011).

Figure2:taxrevenuesource2010/11

Source: National Treasury, 2011 Statistics

Other(4%)

PersonalIncomeTax(34%)CustomsDuties(4%)

SecondaryTaxonCompanies(4%)

FuelLevy(5%)

SpecificExciseDuties(3%)

ValueAddedTax(27%)

CorporateIncomeTax(20%)

Thesituationwasrelativelythesameforthe2010/11periodasshowninFigure2above–thenoticeabledifferencebeingthatPITcontributedevenmoretototaltaxrevenueat34%comparedwith28%in2006/07.TherewasamarginalincreaseinthecontributionofVATtototaltaxrevenuefrom27.1%in2006/07to27.2%in2010/11.ThecontributionofCITtototaltaxrevenueexperiencedadeclineoverthesameperiodunderreviewfrom24%to20%(NationalTreasury,2011).ThismeansthatPIThascontinuedtobearalargershareofthetotaltaxburdencomparedtoVATandCITbetween2006/07and2010/11.

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3.3theanalysisofthetaxinstrumenttrendsinsouthafrica.

Thisstudywillfocusmainlyonanalysingtrendsinthefollowingtaxinstruments:• PersonalIncomeTax(PIT)• CompanyIncomeTax(CIT)• ValueAddedTax(VAT)3.3.1Personalincometax(Pit)PersonalIncomeTaxisataxleviedonthetaxableincome,i.e.grossincomelessexemptionsandallowabledeductions,ofapersonforaspecificyearofassessment.Taxablecapitalgainsalsoformpartoftaxableincome.Individualsgenerallyreceivemostoftheirincomeassalaryorwages,pensionorretirementpayments,andinvestmentincome(interestanddividends).Someindividuals,suchassoleproprietorsandpartners,mayalsohavebusinessincomewhichistaxableaspersonalincome.

ThenumberofindividualsinSouthAfricaregisteredforincometaxhasgrownfromover4.7millionin2007toover5.9millionin2010.Subsequenttogrowingatarateof9.3%in2008,theannualgrowthrateinregisteredindividualsslowedto6.9%in2010(NationalTreasury,2011).

However,thenumberofemployedpeoplecapturedbyStatisticsSouthAfricabetween2008and2011ishigherthanthenumberofindividualscapturedintheSARSregister.ThepercentagedifferencebetweentheStatisticsSouthAfricaregisterandSARSregisteronthenumberofpeopleemployedis54.9%for2010,57.3%for2009,and62.4%for2008(StatisticsSA,2008,2009,2010).ThediscrepancyinthesefigureshighlightsthepossibilityofahighnumberofpeopleoutsidethetaxnetandthereforetheneedforSARStobringtheseindividualsintothetaxnetandwidenSouthAfrica’snarrowtaxbase.

Thedistributionoftaxpayers,taxableincomeandtaxpaid–assessedthroughamajortaxableincomegroupanalysis–revealsthatbetween2007and2010themajorityoftheassessedindividualtaxpayers,thatistosay47.9%in2010,fellwithintheR120001–R400000incomegroup.In2010,5.7%ofassessedindividualtaxpayersfellwithintheR0incomebracket,and8.8%fellintheR400001–R500001+bracketasshowninFigure3below.

0 1–60000 60001–1200000 1200001–4000000 4000001–5000001+

60

50

40

30

20

10

0

2007 2008 2009 2010

TaxableIncomeGroups

Perc

enta

ges

Figure3:distributionoftaxpayers,(individuals’percentage)2007–2010


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However,52.6%ofthetaxcollectedin2010wascontributedby47.9%ofthepeopleassessedbySARSwhofallintheR120001–R400000bracket,and36%ofcollectedtaxin2010wasobtainedfromindividualsfallingintheR400001–R500000+bracketandtogetherthesetwogroupsmakeup8.8%ofoveralltaxableindividuals.Figure4belowshowthetaxcollectedinpercentagesfortheyears2007to2010.

0 1–60000 60001–1200000 1200001–4000000 4000001–5000001+

60

50

40

30

20

10

0

-10

2007 2008 2009 2010

TaxableIncomeGroups

Perc

enta

ges

Figure4:distributionoftaxpayersoverselectedtaxableincome2007–2010


Theaboveanalysisshowthattherearegenerallyfewindividualtaxpayerswithinthehighesttaxableincomegroup(R400001–R500001)buttheybringinasubstantialamountoftaxableincomecomparedwiththeothergroups.Thisimpliesthattheirtaxrateishigherthanthatoftheothergroupsandthereforetheybearalargershareofthetotaltaxburdencomparedtotheotherincomegroups.Thealternativethesiswouldbethatthisgrouphasasubstantiallyhigherincomepercapita.

3.3.2companyincometax(cit)

AccordingtotheinternationalCorporateTaxRatesforSouthAfricafrom2008to2012,theCITwasreducedfrom29%in2008to28%in2009,andhasbeenmaintainedatthatleveluptonow.However,certainsectorsoftheeconomyhavedifferenteffectivetaxratesduetospecifictaxdispensationsanddeductions.Examplesarethegoldminingformula,farmingdeductionsandvaluation,andaccelerateddepreciationofcapitalforqualifyingsectors.SmallbusinesscorporationswithaturnoverofnotmorethanR14millioncanapplyforaspecialtaxdispensationintheformofagraduatedincometaxratetableasopposedtohavingafixedrate.MicrobusinesseswithanannualturnoveroflessthanR1millionmayalsoelecttoonlypayturnovertax.AspartofCIT,companiesmayalsohavetopayCapitalGainsTax(CGT)ondisposalofassets.Secondarytaxoncompanies(STC)hasbeenpayableatarateof15%ondividendswhendeclared,thoughSTChasbeenreplacedbyadividendswithholdingtaxasof1April2012.

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However,therewasachangeinprovisionaltaxpatternsaftertheintroductionofthe80%ruleinJanuary2009throughRevenueLawsSecondAmendmentAct,2008.Thisrule,whichwasimplementedforcompanieswithyear-endsafter1March2009,requirestaxpayerswithtaxableincomeinexcessofR1milliontosettleatleast80%oftheirtaxliabilitybythetimetheymaketheirsecondprovisionalpaymentorincursignificantpenalties.Asaresult,the2009/10fiscalyearsawasignificantdeclineinthirdpayments(fromR27.3billionin2008/09toR9.5billionin2010/11)whilefirstandsecondprovisionalpaymentsincreasedrelativetothetotalprovisionaltaxforeachyear(NationalTreasury,2011).

AccordingtotheSouthAfricanRevenueServicesregister,over2millioncompanieshavebeenregisteredwithSARSbetweenthe2007and2010taxyears,andofthesecompaniesover1.6millionareactiveandpaytheirtaxes.Taxbasebroadeningthrougheducation,outreachandenforcementinitiativeshaveresultedina10.6%increaseinthenumberofcompaniesregisteredsince2009.

3.3.3companyincometaxbysector

In2007,thefinancing,insurance,realestateandbusinessservicessectorwasthelargestsector,witha28%shareofthetaxassessed.Itwasfollowedbyminingandquarrying(10%,)transport,storageandcommunication(8%),long-terminsurance(7%),retailtrade(6%),coalandpetroleumproducts(5%),metal(includingmetalproducts)(5%),wholesaletrade(4%),vehicles,partsandaccessories(4%)andfood,drinkandtobacco(3%)asshowninFigure5below(NationalTreasury,2011).

Figure5:taxassessedbysector(allcompanies),2007

Mining&Quarrying(10%)

Transport,Storage&Communication(8%)

WholesaleTrade(4%)

RetailTrade(6%)

Other(20%)

Coal&PetroleumProducts(5%)

Metal(includingmetalproducts)(5%)

Food,Drink&Tobacco(3%)

LongtermInsurance(7%)

Financing,Insurance,RealEstate&Business

Services(29%)

Vehicles,Parts&Accessories(4%)


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Thepicturechangedslightlyin2010;thefinancing,insurance,realestateandbusinessservicessectormaintaineditsdominanceasthelargestsector,witha27%shareoftaxassessed.Itwasfollowedbytransport,storageandcommunication(12%),retailtrade(9%),coalandpetroleumproducts(5%),wholesaletrade(5%),food,drinkandtobacco(4%),miningandquarrying(4%),metal(includingmetalproducts)(3%)andvehicles,partsandaccessories(2%),long-terminsurance(1%),asshowninFigure6below(NationalTreasury,2011).

Figure6:taxassessedbysector(allcompanies),2010

Mining&Quarrying(4%)

WholesaleTrade(5%)

RetailTrade(9%)

Other(28%)

Coal&PetroleumProducts(5%)

Metal(includingmetalproducts)(3%)

Food,Drink&Tobacco(4%)

LongtermInsurance(2%)

Financing,Insurance,RealEstate&Business

Services(27%)

Vehicles,Parts&Accessories(2%)

Transport,Storage&Communication(12%)


Theanalysisshowsthatthefinancialsector,consistingofinsurance,realestateandbusinessservices,iscontributingmoretotheCITandisthereforebearingagreatertaxburdenthantheothersectors.

3.3.4valueaddedtax(vat)

InSeptember1991,SouthAfricareplaceditsGeneralSalesTax(GST)withaconsumption-typeValueAddedTax(VAT).Theoriginalstatutoryratewas10%,whichwassubsequentlyraisedto14%in1993.TheSouthAfricaVATisleviedonthedomesticsupplyandimportsofgoodsandservices,whileexportedgoods(suchasgold)andservicesarezero-rated.Witharebateforintermediatesandinvestmentpurchases,theVATisgenerallyseenasaconsumptiontaxastheconsumerpaysitatthefinalstageofproduction.TheadvantageofaVATisthat,unlikeotherindirecttaxes,iteliminatesthecascadingeffectsoftaxesonintermediateinputsand,assuch,itremovesdistortionsaffectinginputchoicesinproduction(Kearneyetal.,2005).

Asupplierofzero-ratedsuppliesisnotrequiredtochargeoutputtaxonthesesuppliesbutisneverthelessentitledtoadeductionofinputtaxpaidongoodsorservicesacquiredforthepurposeofmakingthem.Thereisawiderangeofbasicfooditemsaswellaspetrol,dieselandilluminatingparaffinthatarezero-rated.Exportsarealsozero-rated.Exempt

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suppliesareexcludedfromVAT–anexampleofsuppliesthatareexemptfromVATisrentalofresidentialproperty.Unlikeeitherstandard-ratedorzero-ratedsupplies,exemptsuppliesarenottaxableactivities,soasupplierofexemptgoodsorservicesisnotallowedtoclaiminputVATinrelationtotheinputsideofthosesupplies(NationalTreasury,2011).

ThelargestnumberofVATvendorsfor2010/11wereinthefinancing,insurance,realestateandbusinessservicessector(33.8%)followedbytheagriculture,forestryandfishing(13.3%)andretailtrade(9.8%)sectors.Companiesinthefinancing,insurance,realestateandbusinessservicessectormadethelargestproportionofgrossdomesticVATpaymentstotallingR66billion(32.1%)in2010/11.Thecompaniesintheminingandquarryingsectorat0.5%and3.2%ofthetotalgrossVATpaymentsfor2010/11werenegativecontributorstonetVAT.

ThenumberofvendorsregisteredforVATpurposeshasbeendecliningsince2007/08.Thishasbeenduetotheadditionalregistrationandlegislativerequirementsaswellasaclean-upoftheVATregister.Avendorisregardedasactiveifapaymentwasreceivedorarefundwasmadetothevendorduringthefiscalyear.

4.0 HiGHnetwortHindividuals(Hnwis)

SARSdefinesHNWIsasthoseindividualsearningmorethanR7millionperannum,oralternativelythosewhohaveassetsofmorethanR75million.AcollaborativeinvestigationbetweenbanksandSARShasrevealedthatthereisasignificantnumberofHNWIswhoareunder-declaringtheirincome,resultinginsignificantrevenuelosses.Accordingtothisanalysistherearebetween10000and20000individualsinthecountrythatmeetthehighnetworththreshold.Onlybetween2000and3000oftheseindividualshavedeclaredthisincometoSARS(SARS,2012a).

SARS’sowninvestigationhasidentifiedapproximately9300individualswhomeetthecriteriasetofHighNetWorthIndividualsbutarenotregisteredandcompliantasHNWIs.About2300oftheseindividualsareonSARS’sregisterbutarenottaxcompliantwhile7000areunregistered(Vanek,2012).Only360HNWIsareregisteredwithSARSandarecompliant.ThisiscostingthefiscusanestimatedR48billioninpotentialrevenue.SARShasdocumentedsomeglaringanomaliesinthefinancialaffairsofnon-compliantHNWIs–suchas50individualswhoownluxuryprivateplanesthatarevaluedatoverR20million,butwhohavedeclaredgrossincomeoflessthanR1millionintheirtaxreturns.Over1100individualshavebeenidentifiedwhoownpropertyinexcessofR30millioninvalue,themajorityofwhomappeartoearnverymodestincomesthatarenotreconcilablewithassetsregisteredintheirnames.SomeindividualsidentifiedownluxurycarsincludingLamborghinisandFerrariseventhoughtheyclaimtohavegrossincomeoflessthanR350000.

ThemaintaxinstrumentthatappliestoHNWIsistheCapitalGainsTax(CGT),whichhasincreasedtoR9.061billionin2010/11fromR3.661billionin2007/08oftotalCGTraised.However,CGTpaidbyindividualswentuptoR2.012billionfromR1.167billionoverthesameperiod.ThisraisesthetopeffectiveCapitalGainsTaxrateby32%(from10%to13.2%)ofanycapitalgainforHNWIs.

ThereisagreatneedforSARStoproperlycapturetheseindividualsinordertoadequatelytaxthemandraisemorefundsfordevelopmentalinitiativesandprovisionofessentialservices.

sectoranalysis

1.0mininGsector

1.1overviewandimportanceofthesectorintheeconomy

SouthAfricaisacountrywithsubstantialmineralresources.Itistheworld’slargestproducerofplatinumgroupmetals,chromeore,manganeseandvanadiumandamajorsupplierofgold,ironore,nickelanduranium.Mostoftheworld’slargestminingcompaniesareeitherSouthAfricanorhavetheiroriginsinSouthAfrica.Theyincludeamongothers:DeBeers,AngloAmerican,AngloPlatinumandAngloGoldAshanti.

Accordingtothe2011ChamberofMinesannualreport,theminingsectorinthecountrycontributes19%toGDP(and8.6%directly),directlyemploys500000people,anditsmineralresourcesvaluedatUS$2.5trillionmakeittheworldlargestminingindustry.Approximately60%ofthecountry’sexportrevenueisattributabletomining,mineralproductionandsecondarybeneficiatedproducts(NationalPlanningCommission,2011).SouthAfrica’sminingindustryin2008rankedfifthintheworldintermsofthecontributionofminingtoGDP(Baxter,2011).

Theminingsectorisalsolinkedtoothersectorsintheeconomythroughexternalitiestoaclusterofindustriesthateithersupplyitoruseminingoutputs.Thisclusterofindustriesincludes:energy,financialservices,waterservices,engineeringservices,specialistseismic,geologicalandmetallurgicalservices,powergeneration,thechemicalssector,thesteelmanufacturingsectorandtheconstructionsector.

TheChamberestimatesthatanotherR200billioninsalesvalueand150000jobsarefromthedownstreambeneficiationsectorsinSouthAfrica.Allofthecountry’sgoldandPlatinumGroupMetalsarerefinedlocallyandmorethan50%ofthediamondsbyvaluearesoldlocallyintothedownstreamdiamondcuttingandpolishingindustry.

WhileminingremainscrucialtotheSouthAfricaneconomy,thepaceofmineralexploitationhasfallenovertheyearsandthemineralbasehasdepleted.ThevalueaddedtoGDPbytheminingsectorremainedflatdespitethehistoriccommoditiesboomexperiencedbetween2001and2008(NationalTreasury,2011b).Mineproductionfellby12.7%yearonyearinOctober2011(StatisticsSouthAfrica,2011b).

AccordingtoCanada’sFraserInstitute,SouthAfricaisonadownwardspiralonthepolicypotentialindex.Usingtherankingofattractivenessofminingdestinationstoinvestorsasayardstick,SouthAfricawasranked28outof47jurisdictionsin2002/03butfelltoposition67outof79jurisdictionsin2010/11(McMahon&Cervantes,2011).Itisafallthatrepresentsasteepdeclineinthecountry’sstandingasaninvestmentdestination.AccordingtoErnst&Young,therehassimilarlybeenamarkeddeclineinthenumberofSouthAfricanminingandmetalstransactionsoverthelastdecade,withdealvaluesfallingfromUS$13billionin2001toUS$2.9billionin2010(Ernst&Young,2011).

1.2sectorspecifictaxregimeissues

Miningcompaniespaythenormal28%CorporateIncomeTax.However,asexplainedbelow,goldanduraniumcompaniesaretreateddifferently.Capitalexpendituresrelatedtominingareexemptedfromtaxintheyearinwhichtheyoccurred.Asaresultofringfencingintheminingsector,onlytheincomefromthemineatwhichtheapplicablecapitalexpenditureswereincurred,istaxexempt.Inadditiontonormaltax,companiesarealso

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liableforWithholdingTaxonDividends(WTD)toamaximumof15%onnetdividendsdistributedasof1April2012.TheeffectivetaxrateforcompaniesisthereforeacombinationofnormaltaxandWTDandisvariabledependingontheamountofthedividenddeclared.CapitalGainsTaxisalsoapplicableataneffectiverateof14%(FIAS,2006).Thenewdividendwithholdingtaxalsoqualifiesfortreatyrelief.

Goldindustrytaxation

Thegoldminingformulaappliesahighmarginaltaxratetothetaxableincomeofmines,thoughthecapitalexemptioncankeeptaxableincomelow.ForacompanyelectingtheSTCexemption,themarginaltaxrateis45%oneveryrandofprofitinexcessofthe5%tunnelprotection.

Thetaxongoldminingishighlyprogressivebecauserelativelyunprofitableminespayalowaveragetaxratewhilemoreprofitableminespayamuchhigheraveragetaxrate.Thecapitalexpenditureexemptionfurtherexacerbatesthisbecauseminesinearlystagesofdevelopmentnormallyfacehighercapitalexpendituresandthereforehavelesstaxableincomewhilematureminesnormallyfacelowcapitalexpendituresandthushavehighertaxableincome.

Thegoldformula2wasinitiallyintendedtotacklethiseffect.Generouscapitalexemptionsandasteeplyprogressiveburdenwereaimedatencouraginggoldminesnearingtheendoftheirlifecycletoundertakenewinvestmentsindeepershafts.Whilethecostsofproductionfortheseinvestmentsareveryhigh,thegoldformulawasaimedatreducingthetaxburdenforsuchexpansions.Thejuryisstilloutonwhethertheformulahassucceededinthisendeavour.However,worthnotingisthatgoldproductionhasdeclinedandthegoldindustry’sprincipalinputshaveincreasedfasterthanbasicinflation.Theoverallgoldproductioncoststructure,excludingcapitalexpenditure,hasdramaticallyincreasedcomparedtotheprices.Thusprofitabilityhassuffered(FIAS,2006).

vat

Exportsarezerorated.TheminingindustrythereforedoesnotpayanyVATandminingcompaniesarealsoentitledtoclaimarefundforalltheirinputtaxesbecausemostmineralproductionisexported.

1.3analysisofthetaxregime

effectivetaxrate

Accordingtothe2006Sector Study of the Effective Tax Burden of South AfricabytheForeignInvestmentAdvisoryService(FIAS),theMarginalEffectiveTaxRate(METR)oncapitalfortheminingsectoris0.4%(FIAS2006).ThestudystatesthatthelowerMETRisaresultofgeneroustaxtreatmentfortheminingsector.Forinstance,thegoldformulalowerstheoverallCITrate.ThelowerMETRwasalsoasaresultofminingcompaniesbeingabletowriteoffallmachineryandequipmentaswellasminedevelopmentexpenditures.TheMETRonequipmentfortheminingsectorisnegative32%becauseofthisimmediatewrite-offprovision.Thissuggeststhatthereisasubstantialsubsidytoinvestmentinequipmentintheminingsector.

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(2) GoldminingTax=45–225/xonallminingincome,and37%onnon-miningincome,wherexistheratioof

operatingprofittototalrevenue,whichimpliesamarginaltaxrateof45%forcompanieselectingtheSTC

exemption.ForcompaniesnotelectingtheSTCexemption,theformulawas:Tax=35–175/xonallminingincome,

and29%onnon-miningincome,whichimpliesamarginaltaxrateof35%.

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resourcesrenttax

In2011theNationalWorkingCommitteeoftheAfricanNationalCongress(ANC),thegoverningpoliticalpartyinSouthAfrica,appointedaresearchteamtoinvestigateandreportbackonthefeasibilityofminenationalisationinSouthAfrica.Thethree-personresearchteamhasconductedadetailedinquiry,involvingextensivecasestudiesofBotswana,Brazil,Chile,China,Finland,Malaysia,Nigeria,Norway,Sweden,Venezuela,ZambiaandZimbabwe.

Thereporthasrecommendedthatsomeformofwindfallprofitstaxbeintroduced,modelledonAustralia’sresourcesrenttaxfortheminingindustry;andthatrestrictionsbeplacedontheexportofunprocessedminerals(whichwillbesubjecttoexportduties)toencouragedomesticbeneficiationandasubstantiallyincreasedroleforthestateminingcompany,possiblymodelledonCodelco,theChileanstate-ownedcopperproducer.

Thereissomescopeformobilisingmoredomesticresourcesinthissectorthroughanupwardrevisionofthetaxrateandgradualremovaloftaxincentives.

2.0 Financialsector


Thefinancialsectorcertainlyplaysacriticalroleintherealisationofthedevelopmentalaspirationsofanycountry,includingSouthAfrica.Thesectoractsasacatalystforeconomicgrowthandemploymentcreation,andensuressustainableeconomicdevelopmentforthecountryanditspeople.Itprovidesaplatformforordinarycitizenstotransactandexchangepaymentsforgoodsandservices.Throughitsimportantintermediaryrole,thefinancialservicessectortouchesthelivesofordinarypeoplearoundtheglobe.

TheSouthAfricanfinancialsectorcomprisesoverR6trillioninassets,contributing10.5%oftheGrossDomesticProductoftheeconomyannually.Itemploysaboveaquarterofamillionpeople,translatingtoabout4%oftotalformalemploymentandcontributingatleast15%ofCorporateIncomeTax.Since2000,thesectorhasgrownatanannualrateof9.1%,comparedtobroadereconomicgrowthrateof3.6%.Growthinemploymenthasalsobeenverystrong:overthesameperiod,thenumberofpeopleemployedinthesub-sectorincreasedby24.5%andthefinancialsectorhasbecomeoneofthefastest-growingemployersinSouthAfrica.Thetotalassetsofthesectorhavealsogrownsignificantly,registeringnominalcompoundaveragegrowthof12.3%between2000and2010.Financialsectorassetsnowstandat252%ofGDP(NationalTreasury,2011a).

SouthAfrica’sfinancialsectorisbackedbyasoundregulatoryandlegalframework,andincludesdozensofdomesticandforeigninstitutionsprovidingafullrangeofservicesfromcommercial,retailandmerchantbanking,mortgagelending,insuranceandinvestmentservices.

FinancialservicesareexemptedfromVAT.Thesectorissubjectedtostandardtaxtreatmentwithnoparticularsector-specificincentives.Instead,extremelycomplex,innovativeandevolvingproductsandservicescharacterisethefinancialsector.

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vat

InterestincomeearnedbyfinancialinstitutionsisVAT-exempt.Sinceinterestconstitutesahighportionofincome,especiallyforcommercialandretailbanks,onlyasmallportionoftheVATpaidbybanksisrecoverable.SARSappliesaVATrecoveryformulatomostfinancialinstitutions,basedonfeeincomedividedbytotalincome.Formostbanks,thisworksouttoabout10%oftotalVATpaidasrecoverable.Thiscreatesanincentivetoconvertasmuchoftheirincomeaspossiblefromexemptforms(mainlynetinterestmarginandtradingprofits)intofees,toincreasetheirVATrecoverypercentage,whichinturnmaypartlyexplainthehighcommercialbankchargesinSouthAfrica(NationalTreasury,2011a).

Withsomeexceptions,mostoftheactivitiesofbankinginstitutions,animportantpartofthefinancialsector,areexemptfromVAT.ThismeansthatbanksdonotchargeVATnoraretheyabletoclaiminputcreditsfortheVATpaidonmuchoftheirinputs.Thus,likenon-registeredSmallBusinessCorporations(SBCs),bankscanbearaheavyeffective‘salestax’typeburdenontheirinputs.

WithanoverallweightedaverageMETRoncapitalofjustunder30%,thefinancialsectorbearsoneofthehighestmarginaltaxburdensoncapitalofanyofthesectorsstudied.ThisisbecausethesectorisnotthebeneficiaryofanyspecialincentivesintermsofthestatutoryCITrateorallowancesforitscapitalexpenditures,andbecauseoftheexemptionfromVAT.InformationfromSARSsuggeststhatabout25%oftheturnoverofallfinancialinstitutionsistaxexempt.TheresultingindirecttaxonbankinputsiswhatgeneratesthehighMETRoncapitalequipmentinthefinancialsector(NationalTreasury,2011a).

Oneshouldnote,however,thatwhiletheMETRcalculationssuggestahighcapitaltaxburdenonthefinancialsector,therearemanysubtletiesofthetaxsystemasitrelatestothissectorthatcannotbecapturedbytheMETRmethodology.Inparticular,structuredfinancingandtheabilityoffinancialinstitutionstoeasilymovemoney,andbookloans,betweenjurisdictionsisawellknownprobleminthissector.

theFinancialtransactiontax(Ftt)

Thisisanenvisagedtaxtobeleviedonpeopleorbusinessesthatbuyorsellashareofstock,abond,afuturescontract,anoptionscontract,oranyofthecommonlytradedfinancialinstruments.

Thepotentialrevenuesfromthistaxarehuge;recentreportssuggestabroad-based,low-rateFTT(0.01%–0.05%)couldgeneraterevenuesofnearly€200billionannuallyintheEUand€480billiongloballyforimmediateeconomicneedsandfurthereasetheeffectsofgovernmentbudgetcuts.FTTswouldalsomakespeculativetradingandspeculativearbitragelessattractivebyincreasingtradingcosts.FTTscouldraiseevenmorerevenueifcombinedwithcomplementarytaxessuchastheInternationalMonetaryFund’s(IMF)proposedFinancialActivitiesTax(FAT),whichwouldcompensatefortheVATexemptionsthatbenefitfinancialservices.

EventhoughSouthAfricawasreportedtobeinsupportofthistax,therehasbeennoofficialstatementfromeithertheNationalTreasuryorthePresidencyonfunctionalityandimplementationdetails(Hazelhurst,2011)3.

(3) RobinHoodTaxGlobalWeekofActionavailableathttp://www.makefinancework.org/IMG/pdf/gwoa_campaign_

tool-kit_eng.pdf

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Financialtransactionsinflows

CapitalinflowsarecrucialtotheSouthAfricaneconomybecausetheycontributetothefinancingofthecurrentaccountdeficit.However,theycantriggerabruptcurrencyvolatilitythatmaycauselastingdamagetotheeconomy.Thereisthereforeaneedtoslowdownthecapitalinflowintotheeconomy,particularlythatof‘hotmoney’asthishasthepotentialtobringaboutfinancialinstability.

ThereisanopportunityforSARStobetterunderstandthesectorinordertotaxitproperlyandraisefundsfordevelopmentalpurposes.

3.0automobilesector


TheautomotiveindustryistheleadingmanufacturingsectorintheSouthAfricaneconomy.ItisthethirdlargestcontributortonationalGDPaftertheminingandfinancialsectors.AccordingtotheAutomotiveExportManualfor2011,theindustrycontributed6.17%to2010GDP;andonaveragefromtheyear2000,theindustrycontributiontothecountry’sGDPhasbeen6.9%.Thetotalemploymentinthesectorwasestimatedat130000peopleinthemanufacturingofaccessories,componentsandvehicles,translatingtoabout5.9%oftotalmanufacturingemploymentwhilsttheretailsegmentemploysabout200000people(Werbeloff,2011).MostofthemajorglobalvehiclebrandmanufacturersarerepresentedinSouthAfrica.TheseincludeToyota,BMW,Volkswagen,Mercedes-Benz,Nissan,GeneralMotorsandFord.Manyofthemodelsproducedareforboththedomesticandexportmarkets.

TheSouthAfricaautomobileindustryaccountedfor0.61%oftotalproductionofvehiclemanufacturingworldwidein2010andwasranked24thforvehicleproductionintermsofglobalmarketshare.Itsmainexportdestinationsincreasedfrom62in1995to131in2010.Ithasalsofosteredtradeandbusinesspartnershipswiththeessentialtradingblocs,suchastheEU,NAFTAandMercosur.SouthAfrica’smainautomotivetradingpartners,intermsofaddedexportsandimports,areadvancedeconomies.In2010,SouthAfrica’sautomobiletradewithGermanystoodat43%oftotaltrade,Japan19%,andtheUSA18%(Alfaroetal,2012).

TheSouthAfricanautomotivesupplychainencompassesmanufacturing,distribution,andmaintenanceandservicing.Domesticandinternationalfirmssupplyinputsforthemanufacturingprocess.Thevaluechainbeginsbyutilizingbasicmaterialsproducedthroughindustriessuchasminingandlivestock.Theseinitialsuppliersthenprovideinputstootherlayersofsuppliers,whointurnprovidethenecessarymanufacturedinputsforfinalvehicleassembly.Thesubsequentstagesofretailanddistributionaresupportedbydealerships,marketing,financialservices,vehiclemaintenance,transportationandlogisticsproviders.Theautoassemblersareatthecentreoftheindustryandrelyheavilyonthesupportfromsuppliers,manufacturers,andaftermarketindustries.Inaddition,theclusterissupportedbyGovernmentagencies,researchanddevelopmentcentres,andawiderangeofInstitutionsforCollaboration(IFC)(Alfaroetal,2012).

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3.2sectorspecifictaxregimeissues

TheindustryissubjectedtothestandardCorporateIncomeTax.VehiclesmanufacturedarealsoliableforCarbonDioxideemissiontaxesasagovernmentefforttoreducetheemissionofgreenhousegases,ofwhichcarbondioxideisthemajorcontributortoglobalwarming.ThecarbondioxidetaxemissiononpassengervehiclesisR75pergramCO2emissioninexcessof120g/kmandondoublecabsisR100pergraminexcessof175g/km.

TheautomobileindustryreceivessignificantgovernmentsupportthroughasetofincentivesknownastheMotorIndustryDevelopmentProgramme(MIDP).TheMIDPcameintoeffectin1995toassistanindustrythatwasself-sufficientasaresultofextremelyhighimportdutiesandlocalcontentrequirements.

TheoriginalgoaloftheMIDPprogramwastohelptheautomotiveindustryinSouthAfricaadjusttotradeliberalisationandbecomeinternationallycompetitive.Theprogramwasconfinedtoexportfacilitation,whichentailedareductionoftariffs,aremovaloflocalcontentrequirements,duty-freeimportsofcomponentsuptoapercentageofthewholesalevalueofthevehicle,anddutyrebatecreditsearnedonexports.Insimpleterms,thelocalvalue-addedofcomponentsorbuilt-upvehiclesexportedearnscreditsthatcanbeusedtooffsetimportdutiesoncomponentsandvehicles.Thesedutycreditsaretradableandcaneitherbeusedtoimportorsoldtoprovideaseparatesourceofrevenuefortheexporter.

Theprogramwasinitiallyscheduledtorunforfiveyears,butithasbeenextendedthreetimes,andisslatedtoendin2020.ThelatestrevisionhasresultedinanewprogramcalledtheAutomotiveProductionandDevelopmentProgramme(APDP).Itwillsetimporttariffsat25%forbuiltupvehiclesand20%forcomponentsfrom2013.Thelocalassemblyallowancewillenablevehiclemanufacturersproducingmorethan50000vehiclesayeartoimport20%oftheircomponentsdutyfree,andwillreducetariffsto18%(Werbeloff,2011).

AlthoughtheSouthAfricangovernmenthasbeenreducingitssupportinthesubsequentrevisionsoftheMIDP,theincentivesstillremainverysignificant(Black&Mitchell,2002).Importdutiesonvehicleshavefallenfrom65%in1995to40%in2002and30%in2007.Importdutiesoncomponentshavefallenfrom49%to30%andthen25%inthesameyears.Inordertooffsetthereductioninthevalueofincentivesanewfeature,theProductiveAssetAllowance(PAA),wasintroduced,whichineffectsubsidisesinvestmentsinnewfacilitiesforexportproductionratherthandirectlysupportingexportproduction.

Themotorindustryisexceptionallysuccessfulbecauseitisdependentonthegenerousincentiveschemefromthegovernment.Itbasicallyreliesheavilyonbothimportedcapitalandimportedinputs.Bothoftheseattractnominaltariffratesrangingfrom5%–15%.ThemanufacturingsectorfacesanoverallweightedaverageMETRoncapitalof21%.Manufacturingfirmsareabletowriteoffequipmentoverfouryears,at40:20:20:20,ratherthanfiveyearsat20%perannum.Itisnotverylikelythatthisaccelerateddepreciationscheduledrivesanyinvestmentdecision,ordrivesthe5%perannumdepreciationallowanceforindustrialbuildings.

Thissectorisheavilysubsidised.Thegradualremovalofsubsidieswillprovidegovernmentwithadditionalresourcestofundotherdevelopmentalchallenges.

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casestudy–volkswaGensoutHaFrica

volkswagenGroupbackground

TheVolkswagenGroupisoneoftheworld’sleadingautomobilemanufacturersandthelargestcarmakerinEurope.In2011,theGroupincreasedthenumberofvehiclesdeliveredtocustomersto8.265million,reflectinga12.3%shareoftheworldpassengercarmarket.InWesternEurope,over23%ofnewvehiclescomefromtheVolkswagenGroup(VolkswagenAktiengesellschaft,2012b).Thecompanyrecordedimpressivegroupsalesrevenueof€159billionin2011,withaprofitof€15.8billionaftertax(VolkswagenAktiengesellschaft,2012b).

TheGroupismadeupoftenbrandsfromsevenEuropeancountries:Volkswagen,Audi,SEAT,ŠKODA,Bentley,Bugatti,Lamborghini,VolkswagenCommercialVehicles,ScaniaandMAN.Eachbrandhasitsowncharacterandoperatesasanindependententityonthemarket.Theproductspectrumextendsfromlow-consumptionsmallcarstoluxuryclassvehicles.Inthecommercialvehiclesector,theproductofferingrangesfrompick-upstobusesandheavytrucks(VolkswagenAktiengesellschaft,2012b).

TheGroupoperates94productionplantsin18EuropeancountriesandafurthereightcountriesintheAmericas,AsiaandAfrica.Itsellsitsvehiclesin153countries(VolkswagenAktiengesellschaft,2012b).

regionalcomparativeanalysis

TheGrouphastakentheglobalautomobileindustrybystorm.Ithasrecordedanimpressivegrowthinallregions.Figure7belowshowsacomparisonofworldcarmarketandVolkswagenGroupgrowthindeliveriestocustomersfromJanuary2011toJune2012.ThecomparisonrevealsthatVolkswagen’sperformanceoverthisperiodwasstrongerthantherestofthecarmarketinalltheregionscovered.InCentralandEasternEuropethediscrepancywasmorepronouncedwithVolkswagenrecordingagrowthof27.3%whiletherestofthecarmarketmanagedonly10.8%.InNorthAmerica,Volkswagenalsorecordedanimpressive22.1%growthcomparedto13.8%growthintherestofthecarmarket.Thepictureisrelativelythesamefortheotherregions.TheoverallgrowthfortheGroupis8.9%whilefortherestofthecarindustryitis8.5%(VolkswagenAktiengesellschaft,2012a).

ThisimpressiveperformancebyVolkswagenvalidatedthenotionthatthecompanyhasbeenquicklybecomingaleaderintheautomobileindustryinrecentyears.

SouthAmerica

NorthAmerica

WesternEurope

Central&EasternEurope

RestoftheWorld

AsiaPacific

Overall

30

25

20

15

10

5

0

-5

-10

CarMarket VWGroup

Regions

Perc

enta

ges

Figure7:worldcarmarketvsvolkswagenGroupdeliveriestocustomers, January2011–June2012

Source: Volkswagen Group half yearly financial report 2012

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Figure8belowshowsthegrowthinpercentagesofdeliveriesofpassengercarsandlightcommercialvehiclestocustomersbyregion,between2010and2011.Germanyasacountryhasbeenincludedinthegraphbecauseitisaparentcompany.SouthAfricahasbeenincludedbecauseitisthecountryunderreview.

TheanalysisshowsthattheVolkswagenGroupisexperiencingahealthygrowthofdeliveriesofpassengercarsandlightcommercialvehiclestocustomersinalltheregionsandthecountriescoveredwithaworldwidegrowthof14.3%.SouthAfricaexperiencedthehighestgrowthat39.4%.Intermsoftheregions,NorthAmericaexperiencedthehighestgrowthat21.4%,followedbyAsiaPacificat20%,Europeat11.3%andSouthAmericaat5%.GermanyalonerecordedagrowthcomparabletoEurope’sat11.4%(VolkswagenAktiengesellschaft,2012b).

ThegrowthinSouthAfricastandsoutandcanbeexplainedpartlybytheMIDPincentives.ItisworthnotinghoweverthattheVolkswagenGroupperformedwellinotherregionswheretheMIDPincentivesdonotexist.ThismaysuggestthattheGroupwouldperformwellinSouthAfricaevenwithouttheMIDPincentives.However,itisequallyimportanttonotethatinvestmentenvironmentsettingsintheotherregionsareheterogeneouscomparedtothoseinSouthAfrica.ItisthereforepossiblethattheMIDPincentivesactasatrade-offtoothernegativefactorsthatareuniquetoSouthAfrica.

Worldwide

Europe GermanyNorth

AmericaSouth

AmericaSouthAfrica

AsiaPacific

40

35

30

25

20

15

10

5

0

Regions

Perc

enta

ges

Figure8:Growthinpercentagesanddeliveriesofpassengerandlightcommercial vehiclestocustomersbyregion,2010–2011

Source: Volkswagen Group facts and figures navigator 2012

doesthevolkswagenGroupbenefitfrominvestingintaxhavencountries?

GiventhattheGroupreportsitsfinancialsasagroupandnotaggregatedaccordingtoitssubsidiariesitisdifficulttoanswerthisquestion–afundamentaloneforthisstudy.Theissueisfurthercomplicatedbythedefinitionoftheconceptofataxhaven.VariousinternationalinstitutionsincludingtheTaxJusticeNetwork,theOECDandtheIMFhaveattemptedtodefinewhatataxhavenmightbe,withoutmuchsuccess;astheyrealisedthatassoonastheydefinedataxhavengovernmentsandbusinessesquicklychangedtheirbehaviourinanattempttoavoidthelabel.

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TaxResearchUK(theresourcedevelopedbytaxexpertRichardMurphy)has,however,comeupwithaverybroadandcomprehensivedefinitionofataxhaven.Itdefinesataxhavenas:

Alocationthatpromotesfacilitiesprovidingtaxhavencharacteristicssuchas:• Secrecywhetheritbewithregardtobankinginformation,taxdata,financial informationorownershipandmanagementinformationandwhetheritbefrom publicorofficialenquiry;• Lowtaxes,oftenringfenced(evenifbysubterfuge)fromthosechargedtothose residentinthejurisdiction;• Easeofinitialregulatorycompliance(therebeingnolocationwhichdoesnot havesuchregulationnow);• Limitedornoregulatoryfilingrequirede.g.theabsenceoftaxreturnsandother formsofdatasupplytoanyofficialbody;• Thefailuretoenquireastowhereanentityregisteredinthejurisdictionmightbe locatedifnotconsideredresidentwithinit;• Rapidrelocationofactivitiesisallowedatthewhimoftheowneroftheoffshore structuree.g.bytrustrelocationorcompanyredomiciliation;• Flexibletrustarrangementsthatdonotmeetthestandardsrequiredbyonshore jurisdictionsandtheHagueconventionontrusts;• Limitedinformationexchange;• Thepresenceofmajorbanking,accountingandlegalentitiesdisproportionateto anyidentifiablelocalneed;

Thedefinitionfurtherincorporatesthecommitmenttoinnovatetoensurethattheseadvantagesareretaineddespitechangeininternationalregulationandattitudes;significantnotionalflowsoffundsthroughthelocationunjustifiedbyanyapparenteconomicactivityundertakenthere;andtheregisteredownershipofassetsinthelocationinexcessofanyobviousneedinherentinthelocaleconomy.

ThelackofdisaggregatedfinancialinformationforVolkswagenGroupSouthAfricameansthatitisnotpossibletousethisdefinitiontoproperlyascertainwhetherornotthecompanybenefitsfrominvestingintaxhavenlocations.

limitationsoftheanalysisofthecasestudyduetolackoffinancialdata

ThereportingofalltheVolkswagenGroup’sfinancials,includingprofitsandtaxes,inaconsolidatedformatwithoutanydisaggregationforanyofitssubsidiaries,isamajorhandicaptotheanalysisofthiscasestudybecauseitprecludesaproperanalysisofprofitsthataccruetoVolkswagenGroupSouthAfricaandmoreimportantlythetaxesthatthecompanypaystoSARS.AnaccuratequantificationoftheMIDPincentivesisvirtuallyimpossibleintheabsenceofthisvitalfinancialinformation.

Itisworthnotingthattheabilityofstatestomobiliserevenueisseriouslyunderminedbyillicitcapitalflight.AreportpublishedbyForumSyd–agroupofSwedishcivilsocietyorganisationscollaboratingforhumanrightsandglobaljustice–entitledBringing the Billions Back (2011) hasfoundthatonanannualbasishugeunreportedflowsofmoneyareleavingdevelopingcountries,endingupinrichcountriesortaxhavens(Froberg&Waris,2011).

ThereportfurthernotesthatifproperlyreportedthisillicitcapitalflightwouldgenerateatleastUS$160billionperyearintaxrevenuewhichtranslatestomorethanoneandahalftimesthetotalannualaidtothedevelopingworld.Theseareresourcesthatcouldbecrucialinthefightagainstpoverty.

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Perhapsmorestrikingisthat,accordingtothereport,onlyasmallshare,3%to5%,ofillicitcapitalflightstemsfromcorruption.Yetalmosttwothirdsoriginatesfrommultinationalcompaniesevadingtax.Moreover,asapercentageofGDP,capitalflightfromAfricaisgreaterthanfromotherpartsoftheworld.

Itmustalsobenotedthatthisillicitcapitalflightisexacerbatedbyfinancialsecrecyintaxhavensandcorporatesecrecythatallowsmultinationalcompaniestoshiftprofitsoutofdevelopingcountriestotaxhavens.

volkswagenGroupsouthafrica

VolkswagenGroupSouthAfricaisawhollyownedsubsidiaryofVolkswagenAktiengesellschaft(VWAG)inGermany.ItisthelargestGermaninvestmentinSouthAfrica.ItislocatedinUitenhage,anindustrialtownnearPortElizabethintheEasternCapeandemploys6500people(VolkswagenAktiengesellschaft,2012a).

VolkswagenGroupSouthAfricahasachievedgreatsuccesswiththeintroductionoftheCitiChiccoin1995.Apartfromexportingbuilt-upunitstooverseasmarkets,italsoexportsbodyandenginepartsandcatalyticconverterstocountrieslikeArgentina,Spain,BelgiumandGermany.VolkswagenGroupSouthAfricamanufacturesGolf4,Golf5,Golf1andPolomodelsforlocalandexportmarkets(VolkswagenAktiengesellschaft,2012a).

GiventhelackoffinancialinformationonVolkswagenGroupSouthAfrica,thesalesfigureswereanalyzedandusedasaproxyfortheperformanceofthecompanyasdetailedbelow.

salesPerformance

VolkswagenGroupSouthAfricarecordedsignificantgrowthinitsfirstquartersalesfigures–from17007in2010to24861in2011–reflectinganincreaseof46%.

Thecompanycontinuedtoenjoyimpressivesalesasitrecordeda12.5%increaseinthefirstquarterof2012,delivering27958vehiclescomparedwith24861vehiclesinthefirstquarterof2011.Thepositivestartto2012gavethecompanya17.8%marketshareintheSouthAfricantotalcarmarket.PoloVivowasthetopsellingbrandinthepassengercarmarketwith8461units.

VolkswagenGroupSouthAfricaledinthepassengercarmarketwithtotalsalesof8260unitsandmarketshareof23.7%inMay2012.Atotalof34820newpassengercarsweresoldinSouthAfrica,anincreaseof18%whencomparedtosalesinApril2012andagrowthof20.8%againstthesameperiod(April–May)in2011.FromJanuarytoMay2012,themarketimprovedby11.3%againstthesameperiodin2011.TheVolkswagenCommercialVehiclessectorreportedsalesof575unitsofwhich249wereAmarokSingleandDoublecabsinJune2012.SupplyconstraintsinArgentinacontinuetoimpactonthedeliveryoftheAmarokrangeintoSouthAfrica.

ThecompanymaintaineditsleadershippositioninthenewpassengercarmarketinJune2012andreportedtotalsalesof7754unitsandamarketshareof21.6%.

DuringJune2012,anindustrytotalof35918newpassengercarsweresoldinSouthAfrica,anincreaseof3.2%whencomparedtothereportedsalesinMay2012andagrowthof14%whencomparedtothesameperiodin2011.Inthefirsthalfof2012,newpassengercarsalesimprovedby11.8%againstthesameperiodin2011,whilstinthesecondquarterof2012,saleswentupby15.5%comparedtothesecondquarterof2011(VolkswagenAktiengesellschaft,2012a).VolkswagenGroupSouthAfricamaintaineditstoppositioninthenewpassengercarmarketfor2012withtotalsalesof8689units.DuringJuly2012,37844newpassengercarsweresoldinSouthAfrica.Themarketincreasedby5.4%whencomparedtoJune2012,andgrewby18.2%whencomparedtoJuly2011,bringingtheJanuarytoJuly2012markettoalevel9.7%abovethesameperiodfor2011(VolkswagenAktiengesellschaft,2012a).

VolkswagenCommercialVehiclessold720unitsand477oftheseunitswereAmaroksingleanddoublecabmodelsinJuly2012(VolkswagenAktiengesellschaft,2012a).

ItisimportanttonotethattheVolkswagenGroupreportsallitsfinancialincludingprofitsandtaxesinaconsolidatedformatwithoutanydisaggregationforanyofitssubsidiariesincludingVolkswagenGroupSouthAfrica.

BecauseoftheVolkswagenGroup’spracticeofconsolidatedreporting,VolkswagenGroupSouthAfricafinancialswerenotreadilyavailabletoenableaproperanalysisoffinancialperformanceandoftheimpactoftheMIDPincentivesonthefinancesofthecompany.However,theVolkswagenGroupfinancialsandthecomparativeregionalanalysisaboveshowthatthecompanyisdoingwellbothinGermanyandinmostoftheregionsinwhichitisoperating.AhighlevelconclusioncanthereforebereachedthatVolkswagenGroupSouthAfricacancompeteeffectivelyintheworldmarketsevenwithouttheincentivesthatitcurrentlyenjoys.Thishighlightsthepossibilityofusingdomesticresourcescurrentlydirectedtowardsautomobilesectorincentives,forotherdevelopmentalinitiatives.

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conclusionandrecommendations

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Despiteimpressivedevelopmentalstrides,inequality,unemploymentandpovertyremainhighinSouthAfrica.Thereisthereforeaneedtomobilisedomesticresourcesthatwillenablethecountrytofacethesedevelopmentalchallenges.

InSouthAfricajustabout10%ofthepopulation,whichtranslatestoabout5.9millionpeople,paytaxestosupportatotalpopulationofover50millionpeople.Thetaxbaseisthereforeverynarrow.StatisticsSouthAfricahasrecordedapproximatelydoublethiscurrentnumberoftaxpayersasemployedpeopleinSouthAfrica,highlightingthatabouthalfoftheemployedpeoplearepotentiallyoutsidethetaxnet.

ItisrecommendedthatSARSupdateitsregistertotrulyreflectthenumberofpeopleemployedandthusbroadenthetaxbasetomobilisedomesticresourcesforthedevelopmentalchallengesfacingthecountry.

Thereareover2millioncompaniescurrentlyregisteredinthecountrybutjustover1.6millionareactiveandpaytheirtaxes.Thereisthereforeasubstantialnumberofcompaniesthataredormantanddonotpaytaxes.ItisrecommendedthatSARScleanupitscompanyregistertoaccuratelyreflectthenumberofactivecompanieswhoarepayingtaxinordertomobilisemoreresourcesforthedevelopmentofthecountry.Thereisalsotoomuchdependencyonthefinancialsectorforrevenue.ItisthereforerecommendedthatSARSallocatemoreresourcestoinvestigatingwhytheothersectorsarelaggingbehindinpayingtaxesinabidtospreadthetaxnetfairlyacrossallsectors.

TherearetoomanyHighNetWorthIndividuals(HNWI)whoareoutsidethetaxnetinSouthAfrica.ItisrecommendedthatSARScontinuetotracktheseindividualswiththeaimofhavinganaccurateregisterandbringingallofthemintothetaxnettomobilisemoredomesticresourcesforsocio-economicdevelopment.

ItisalsorecommendedthatgovernmenttakedifferentstepsaimedatencouragingvoluntarydisclosuresfromHNWIs–suchasintroducingamnestylawstoeasethepunitiveburdenassociatedwithdisclosureofinformationandtoencouragetherepatriationofresourceskeptabroad,andspeedilyissuingtaxrulingstohelptaxpayersknowwhattaxburdentheyaresubjectto.Taxadministratorsshouldmaintainacooperativeattitudeinengagingwithtaxpayers,whichwouldhelptofacilitatethenegotiationsonwhattaxburdenHNWIsshouldbear.

SARSshould,inpartnershipwiththeinternationalcommunity,instituteinitiativesthatareaimedattrackingthepatternsofspendingfortheseindividualsinadditiontoincreasinginternationalandcross-bordercooperationgearedtowardsendingsecrecyintheirfinancialtransactions.

Regardingtaxevasionandavoidance,itisrecommendedthatthreepolicies,AutomaticTaxInformationExchange,BeneficialOwnershipregistries,andcountry-by-countryreportingformultinationalcompanies,beinvestigatedandinstitutedbySARSaskeymeasurestocurtailtheseactivities.

AutomaticTaxInformationExchangewouldrequireSARStocollectfromfinancialinstitutionsdataonincome,gains,andpropertypaidtonon-residentindividuals,corporations,andtrusts.Thisdatawouldbecollectedandautomaticallyprovidedtothetaxauthoritieswherethenon-residentpersonorentityislocated.Reciprocally,thecompetenttaxauthoritiesofthirdstateswillautomaticallyexchangeinformationontheforeignincomeofresidentsofSouthAfrica.

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Theintentionistocreateaglobalstandardtogreatlylimittheabilityofpeopleandcompaniestoavoidorevadetaxesintheirhomecountrybyhidingfundsinanotherjurisdiction.

ABeneficialOwnershipprovisionwouldhavetwoprongs:actionbySARSandactionbythefinancialinstitutionsinSouthAfrica.ItwouldrequireSARStoensurethatthebeneficialownership,controlandaccountsofcompanies,trustsandfoundationsbereadilyavailableonpublicrecordtofacilitateeffectiveduediligence.Withrespecttothefinancialinstitutions,thisprovisionwouldexplicitlyrequirethattheyidentifytheultimatebeneficialownersorcontrollersofanycompany,trustorfoundationseekingtoopenandoperateanaccount.

Sincetaxavoidanceisfacilitatedbytaxhavenstructurescreatedtoshroudbusinessactivityinsecrecy,country-by-countryreportingwouldrequirethatallmultinationalcompaniesreportsales,profits,andtaxespaidinalljurisdictionsintheirauditedannualreportsandtaxreturns.

TheoverallMarginalEffectiveTaxRatefortheminingsectoriscurrentlyverylow.Itisthereforerecommendedthatthecapitalequipmenttaxincentivesaregraduallyremovedtofreedomesticresourcesfordevelopmentpurposes.

ThefinancialsectorbearsthehighestMarginalEffectiveTaxRateoncapitalofallofthesectorsstudied.Itisrecommended,however,thatSARSembarkonaneducationalendeavourthatwillenablethemtounderstandthefinancialinstrumentsusedinthissectorinordertotaxthesectorproperlyandmobilisemoredomesticresourcesfordevelopment.

TheautomotiveindustryreceivessignificantgovernmentsupportthroughasetofincentivesknownastheMotorIndustryDevelopmentProgramme(MIDP).AlthoughtheSouthAfricangovernmenthasbeenreducingitssupportinthesubsequentrevisionsoftheMIDP,theincentivesstillremainsubstantial.Itisthereforerecommendedthatthetaxincentivesforthissectorbegraduallyeliminatedinordertofreeresourcesforotherdevelopmentalneeds.

ThesalesperformanceofVolkswagenGroupSouthAfricainthecasestudyconductedrevealsthatthecompanyisdoingwell.TakingintoconsiderationtheVolkswagenGroupfinancialsandthecomparativeregionalanalysis,ahighlevelconclusioncanbereachedthatVolkswagenGroupSouthAfricacancompeteeffectivelyintheworldmarketsevenwithouttheincentivesthatitcurrentlyenjoys.ItisthereforerecommendedthatthecurrenttaxincentivesprovidedtotheautomobileindustryinSouthAfricabeinvestigatedfurthertofindoutifincentivesshouldnotbegraduallyremovedtogeneratemoreresourcesforsocialinvestments.

Insum,SouthAfricacontinuestofacechallengesofwidespreadinequalities,highunemploymentandpoverty.Inordertotacklethesechallengesheadon,substantialdomesticresourcesmustbemobilised.ThisanalysishasshownthatthereisgreatpotentialtoraisetheseresourcesthroughimprovedefficienciesinPITandCITforthemining,financialandautomobilesectors.

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title OccasionalPaper1 Fairandequitabletaxation:DomesticResourceMobilisation2012PublisHed February2013byOxfamautHors ThandoNgozoandMusaSimelanetecHnicaleditor ThembinkosiDlaminiProoFreader EvaJacksondesiGn LUMOdesign&illustration(www.lumo.co.za)coPyriGHt Oxfamgivespermissionforexcerptsfromthispapertobephotocopiedorreproducedprovidedthat thesourceisclearlyandproperlyacknowledged.SuggestedcitationNgozo,T.&Simelane,M.(2012) Fairandequitabletaxation:DomesticResourceMobilisation2012,Oxfamdisclaimer Theviewsinthispublicationarethoseoftherespectiveauthorsanddonotnecessarilyrepresentthose ofOxfamoranyfundingagency.contactdetails Oxfam 2ndFloorIkusasaHouse 129FoxStreet, Johannesburg 2107 SouthAfrica Tel:+27(0)112232454 [email protected]

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Occasional Paper 1: Domestic Resource Mobilisation Tax Study (2012)