Quite a few analysts forecast that today’s Medium Term Policy Budget Statement (MTBPS) would announce an increase in Value Added Tax (VAT)., but this didn’t materialise.
However, the MTBPS documents show that Treasury has, indeed, considered the Davis Tax Committee (DTC)’s report on VAT.
“While VAT might be perceived as regressive, comparative studies show that South Africa’s overall fiscal system (tax and public expenditure) is strongly redistributive,” the MTBPs documents add.
“Receipts generated from VAT – the second-largest source of tax revenue – are an important part of the resources that fund progressive public expenditure programmes in education, health and social protection.”
Treasury says the DTC’s analysis of the efficacy of the VAT system, and the scenarios it presents on the likely impact of an increase in the VAT rate, have generated “welcome debate”.
However, “to date, no decisions have been made.”
“But an increase in the VAT rate remains one of the options available over the medium term to finance key elements of the National Development Plan.”
CORPORATE INCOME TAX
Turing to corporate income tax, Treasury says that worries about base erosion and profit shifting – in particular the misuse of transfer pricing – remain topical globally and in South Africa.
“Initiatives are underway to comprehensively deal with leakages in corporate income tax,” it warns.
South Africa has already committed to automatic exchange of financial information for tax purposes. The first exchange took place last month.
Over 90 countries have committed to exchanging information by 2018, including several low-tax jurisdictions.