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Dennis Davis: SA has painted itself into a terrible corner

Sep 28 2018 08:00
Carin Smith

Now that the option of a 1% VAT increase has been used, there is no more room left for government to try and increase fiscal revenue from a tax perspective, according to Judge Dennis Davis.

Davis, who is the chair of the Davis Tax Committee, addressed the Cape Town Press Club on Thursday.

In his view, the reason why there was a 1% VAT hike was that there was no other way for government to bridge the gap between revenue collected by SARS and what government actually spends. Fears of this gap widening had to be addressed in the budget.

"The government cannot increase VAT again, especially not before the election," said Davis.

"It seems to me that, on the fiscal side, we have painted ourselves into a terrible corner. We don't have any further runway."

For him that leads to the question of how government is going to be able to fund something like the economic stimulation package recently announced by President Cyril Ramaphosa.

"Ahead of the election no-one will say the public wage bill must be cut. So where is the money going to come from? I don't think much more revenue could come through corporate or individual tax increases, nor through establishing a more efficient SARS," said Davis.

"The problem with a wealth tax is that it does not bring in a lot of money. In any event, due to huge levels of corruption, people's tax morality has likely declined."

He agrees with the view that the top 100 companies in SA could, for instance, be asked to contribute the equivalent of 1% of their capitalisation value to a special fund.

According to Davis, the money in such a fund can then be used for capital expenditure projects like building hospitals and roads. Davis repeatedly emphasised, though, that such a fund should be ringfenced and the use of the money clearly stipulated and implemented.

If you ringfence what had been collected from top companies in such a way, you will have more hope of collecting it. If it is not going to be ringfenced it will not work.

"One could say that we all got away cheaply because of the Madiba Miracle and, therefore, we should collect money from the top companies, for instance, and put it in a fund where everyone would know where the money will go and that it will not just be 'stolen'," said Davis.

"We should debate the question of why we should not contribute to something like that. The other alternative could be that a more populist approach is established if we do not find a way to create greater equality."

During question time a member of the audience suggested that such an additional "tax" contribution by the business sector as Davis suggested should rather be called a public private partnership (PPP) and not an additional tax. Companies might then be more interested, especially if they could earn some interest from their “investment”.

Davis responded that it should be debated whether the time has not perhaps come for such a "redistribution" to take place. He again emphasised the importance of it having to be an accountable redistribution system, though.

He added that, first, policy certainty would be required.

"I am cautious about tax increases as people will not invest in a place that is not stable. And we cannot have social stability if there is no infrastructure. We must make sure the boat is stable for all of us," he concluded.

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dennis davis  |  vat increase  |  budget 2018  |  sa economy
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