Tax system must be "redistributive"

Thursday, February 23, 2017

Cape Town - Finance Minister Pravin Gordhan says the South African tax system has to be redistributive if the country is to usher in radical socio-economic transformation.

The Minister said this when he interacted with captains of industry, school children and members of the public at a post-budget breakfast briefing in Newlands, in Cape Town, after delivering his Budget Speech in Parliament, on Wednesday.

He said this in response to a reaction on National Treasury’s decision to introduce a new tax bracket of 45% for those with a taxable income of above R1.5 million.

“There has been a lot of commentary on the 45%, some of it misdirected regrettably, it will affect the black middle class and some of them calling for a corporate tax increase.

“I think we must forget about black and white, if you are a middle class and you live in a democracy, we have a progressive tax system and you pay your fair share of tax as South Africans so that we can develop a fiscal capacity to do things that we have to do.

“Where transformation comes in, it is to ensure that our tax system is redistributive,” he said.

VAT “too regressive”

Several questions were asked by those that attended the breakfast.

One of the invited guests asked why National Treasury did not increase value added tax (VAT) instead of increasing the burden on personal income tax.

The Minister said increasing VAT could have an unintended negative impact on the poor.

“VAT is a regressive tax, meaning it actually has a negative effect on the poor.

“Secondly, VAT is also being considered by the Davis Tax Panel that was set up ... in 2013 by Judge Davis to look at all our tax and see what’s appropriate in the current environment.

“Thirdly, we must start having a conversation around VAT as it is a sensitive matter because of its potential impact on poor people. But it is on the table so they started talking. So if you say increase it, is it by one percent or two percent, if you are saying you are going to protect the poor, what will be the zero-rated items? What will be the exemptions?”

The Minister said any increase in VAT should not be brought up as a surprise, but that it should be part of a social process.

Job creation through partnerships

Meanwhile, the Minister said while government will do everything to create an environment that enhances business confidence, the private sector has a bigger role to play in creating employment.

“Business is in the business of making money at the end of the day and we will push them as much as we can to have a social conscience, to contribute to the transformation process in South Africa.

“The real answer about business investing is you need to join us on a charm offensive, say this is your country, we need to make it work. Jobs are not created by government, government can do so much to create conditions, provide services, provide money for public employment programmes and support all sorts of ventures by small businesses or even larger businesses,” he said.

The Minister said in the end, 70% of the country’s economy is in private hands and that they are the ones who are able to create jobs.

The Minister later said it is crucial for the country to produce highly skilled graduates in order to have a brighter future.

“It is absolutely crucial for our future that we have highly skilled young people coming out of our higher education system, who will become excellent entrepreneurs, innovators, engage in research and development and take our economy to a completely new level.

“And part of that economic transformation is radically changing the structure of the economy. It is not just about where the money goes, it is radically changing the structure of the economy so we can grow faster, grow more inclusively and give more South Africans, particularly the marginalised, opportunities that they have never had before.” –

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