Don't cut on tax 'expenses'

Pretoria - Companies must not start thinking tax is an expense that can be cut.

That warning came from Finance Minister Pravin Gordhan when introducing the Taxation Laws Amendment Bills in Parliament this week.

Gordhan was referring to the levelling off of tax revenue as a result of the economic crisis.

The temptation to cut this "expense" was evident everywhere. "International transactions and structures are used to reduce income, increase expenses or to manufacture inappropriate tax benefits."

Even more worrying, Gordhan said, was the use of "structural fog", limited disclosure or even non-disclosure to secure benefits.

Deloitte tax director Billy Joubert says the National Treasury and the South African Revenue Service (Sars) clearly had plans for blocking such loopholes. One was a stronger focus on international transactions and it's definitely aimed at transfer pricing and the structuring of multinational companies. "We can expect enforcement of the law by means of co-operation with other governments," says Joubert.

Two senior Sars officials are currently attending the Global Forum in Mexico, where the issue of transparency and the exchange of information on tax matters is being discussed.

Joubert said there's already a perception VAT repayments are excessively high. There are cases where companies can be permanently in a VAT-repayment position. "That in itself isn't wrong, but there are people who use VAT to improve their own positions.

"That's in fact worse than withholding income tax payments. It's not your money but the State's money you've collected on its behalf."

Deloitte's Le Roux Roelofse adds SA is in an abnormal situation and normal measures aren't necessarily the best.

He said the growing Budget deficit is therefore currently not cause for concern.

Government's view was rather to stimulate growth by implementing Budgeted infrastructure development.

Gordhan announced the Budget deficit is now 3.8% of gross domestic product.

"That can serve as a catalyst to stimulate the economy and there's room for moving to a bigger Budget deficit," he said.

The alternative is to cut back on expenditure, which would make the corporate battle for survival even tougher and mean more workers losing their jobs.

However, Deneys Reitz tax director Johan Troskie said the growing deficit is cause for concern.

"Given the economic times we must bear in mind what tax revenue is spent on."

The danger signals for Troskie are that expenditure plans aren't keeping pace with the economic climate. He said there's also ill-considered spending, such as the buying of expensive vehicles, as well as corruption.

Total income for the year to 31 July was R157bn, against total expenditure of R246.6bn.

- Sake24.com