Tax compliance vital for service delivery

© Tomasz Pacyna – 123RF.com

"Domestic resource mobilization requires that we increase our efforts to protect our tax bases. In this regard, tax evasion cannot be tolerated," said the President, speaking on Sunday on international tax during the G20 Summit being held in Antalya, Turkey.

He added that tax must be paid in the country where profit is made.

"South Africa supports and has actively engaged in the G20 and Organisation for Economic Co-operation and Development (OECD) work on Base Erosion and Profit Shifting (BEPS), and we commend the OECD for progress they have achieved in finalising the BEPS project.

"As we shift to the implementation phase of the BEPS project, it is important to ensure that developing countries also benefit from the recommendations. Collectively, we need to ensure that implementation is backed up by the necessary technical support to make this a reality on a country-specific basis," said the President.

The implementation of the Call to Action for Strengthening Tax Capacity in Developing Countries cannot be overemphasised.

"South Africa's financial institutions have informed our tax authorities of the additional compliance burden required by BEPS processes. We take note of this and will endeavour to implement the recommendations flowing from the BEPS reports and at the same time keep compliance costs to a minimum," said President Zuma.

BEPS project

He called on continued work on Action 11 of the BEPS project, to measure BEPS globally and by individual countries, including looking at different BEPS channels.

This information will guide in identifying the developing countries that should be prioritised for capacity building assistance.

"I would like to thank the World Bank Group and the IMF for their initiative to assist developing countries in building capacity that will enhance their voice and enable them to discuss international tax issues with developed countries on an equal footing," said the President.

Automatic exchange of information

Developing countries will face similar challenges with automatic exchange of information. And thus, said the President, their views must be heard with the implementation of the Global Forum on Transparency and Exchange of Information Road Map as well as in the implementation of any other initiatives.

It was important that countries have an option between Automatic Exchange of Information (AEOI) and exchange of information upon request as many developing countries are unable to jump to AEOI.

He said an additional area of concern for South Africa and the region is trade mispricing by some companies.

"Illicit financial flows research alludes to the fact that two thirds of the amount lost to developing countries is due to trade mispricing. Such practices have an adverse impact on domestic resource mobilisation and the sustainability of public finances," he said.

President Zuma said there was a role to be played by the G20 in this area, to focus attention on these types of challenges which is directly informed by the needs of developing countries.

"The G20 can provide greater impetus in reducing Illicit Financial Flows, by calling on both the Sherpa and Finance Tracks to address the developmental and financial aspects of this challenge," said President Zuma.