Mazars wish-list to Mboweni: Drop the corporate tax rate

2019-01-29 19:06 - Khulekani Magubane, Fin24
Finance Minister Tito Mboweni during a media brief
Finance Minister Tito Mboweni (GALLO IMAGES) ~ Gallo Images

While acknowledging it was likely wishful thinking, economy experts at Mazars said one of their hopes for Minister of Finance Tito Mboweni’s Budget speech next month would be for him to ease up on increasing corporate tax.

The global audit, accounting and consulting group held a panel discussion with its own tax experts on Tuesday morning, ahead of Budget Day on February 20.

Senior Tax Partner at Mazars, Bernard Sacks, said while he understood the pressures Mboweni faced, it was critical to look at other means to generate income, such as investing in infrastructure. There was less room to impose taxes without a growing economy, he argued.

'If not now, then when?'

"I agree that there is a case to be made for not reducing it. But it’s almost a case of if not now, then when? When do you want to actually start generating that kind of investment? Ramaphosa is going to find foreign direct investment a hard sell without a decrease in the tax rate," said Sacks.

Mazars National Head of Taxation Mike Teuchert said it was vital that Mboweni keep in mind the rate at which the cost of servicing South Africa’s debt grew in budget estimates.

"It would take a very brave minister of finance to decrease the corporate tax rate and hope the economy would generate enough growth to make up for it," said Teuchert.

Teuchert said South Africa should ideally pursue economic growth, and then allow taxes to grow. Without good growth rates, SA will struggle to bring in the revenue we are projecting, said Teuchert.

"At one stage there was a drive to widen the tax base by looking at the informal sectors. We are sitting at a 28% tax rate. If we are trying to attract investment to grow the economy, a corporate tax is not an incentive. SARS hasn’t got scope to increase it much further," Teuchert said.

Sacks said there had been little in the way of promising signs from consumer expenditure. However, he said the exchange rate had held up well since the beginning of the year.

"We were probably ready for growth in the past, but it probably wasn’t recognised by government. Last year there was an opportunity, but things were rather chaotic. Now that the finance minister has got an opportunity to settle in, we may have a greater opportunity for something more than the 1% each year [in] economic growth," said Sacks.