Treasury might hike taxes

Judge Dennis Davis has formed a number of sub-committees to look into whether the tax regime is appropriate for those sectors. Image: The Abbey DABller

The statement builds on the repeated warnings by former Finance Minister Pravin Gordhan that in the absence of strong economic growth‚ the government would have to seek alternative ways of raising finance‚ including raising taxes.

The Treasury said the work of the Davis committee has become even more significant in light of the economic contraction in the first quarter of 2014. Simple but portentous.

With the strike in the platinum sector continuing and a strike in the metal and engineering sector looming‚ the prospects of the economy achieving the Treasury's 2.7% growth forecast this year are becoming increasingly forlorn.

It will mean lower tax revenue to fund a mountain of state debt and expenditure programmes.

When he announced the formation of the committee last year‚ Gordhan said its aim was to assess SA's tax policy framework and its role in supporting the objectives of inclusive growth‚ employment‚ development and fiscal sustainability.

He also warned in his 2013/14 budget vote speech that if growth continues along the present trajectory‚ substantial spending commitments would require significant adjustments in revenue and reductions in other areas of spending.

Money is needed to fund government spending

Former Finance Minister, Pravin Gordhan, hinted in his budget speech earlier this year that taxation levels might have to be lifted. Image: GCIS

The Davis committee's terms of reference noted that given the pace of globalisation‚ the relatively modest economic growth after the 2008/09 economic recession‚ and the significant social challenges such as persistent unemployment‚ poverty and inequality‚ there is a need to review what role the tax system can play as part of a coherent and effective fiscal policy framework in addressing these challenges.

It added that revenue-raising to fund government expenditure is the primary objective of taxation.

The Treasury's comment was made in a statement about the newly created sub-committees of the Davis committee which would deal with mining‚ VAT and estate duty. These were in addition to existing ones for small business‚ macro-analysis‚ base erosion and profit shifting.

The focus of the mining sub-committee will be on whether the current mining tax regime is appropriate to ensure the sector contributes to growth and job creation‚ remains a competitive investment proposition and creates better working and living conditions for employees.

It will also look at low commodity prices‚ rising costs‚ falling outputs and declining margins‚ and the mining sector's current contribution to tax revenue. The deadline for submissions is end-July.

The VAT subcommittee will focus on efficiency and equity‚ and the effectiveness of dual rates‚ zero rating and exemptions. Submissions must be made by 15 July.

The estate duty subcommittee will focus on the progressivity of the tax and whether it still has a role in supporting a more equitable and progressive tax system.

Submissions have to be in by the end of July.