Category Economy
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Trevor Manuel and Judge Dennis Davis talk tough post Budget 2017

27 February 2017 Muhammad Saloojee, KPMG
Muhammad Saloojee, Head of Tax and Legal for KPMG.

Muhammad Saloojee, Head of Tax and Legal for KPMG.

Two days after Finance Minister, Pravin Gordhan, delivered his 2017/18 Budget Speech, KPMG in South Africa hosted a budget breakfast to unpack – among other things – the tax proposals that were delivered by National Treasury. The breakfast discussion had an esteemed panel of progressive thinkers such as former Minister of Finance, Trevor Manuel and Judge Dennis Davis, who is the Chair of the Davis Tax Committee.

Under the theme; managing disruption and tax technology, Muhammad Saloojee, Head of Tax and Legal for KPMG in South Africa, kicked off the session by noting that business, economic and political disruption – both on a local and global scale – have had substantial impacts on how companies manage their tax affairs. “With the world changing so rapidly, there is a greater urgency for businesses to focus more effort on strategies for sustainability while maintaining compliance, requiring decision makers to have more visibility in order to accomplish this,” said Saloojee.

Trevor Manuel acknowledged that the Budget Speech was delivered under difficult circumstances. “Minister Gordhan had to stand up and deliver a speech amidst current administrative weaknesses and growth issues facing the country. This has made Budget become a difficult enterprise to manage,” said Manuel.

Part of the problem that Treasury is facing, continued Manuel, was that more than R530 billion is allocated to provinces. “This means that the provinces can do whatever they want with that money, leaving Treasury with no say over what happens to the spending thereof, or lack thereof. These are the fundamental discussions that must be tabled and filtered down to the level of the State of the Province Addresses.”

On state-owned enterprises, Manuel mainly noted the fact that there needs to be a solid developmental mandate of these institutions. It was on supply chain management where the former minister delved more. “Without any doubt,” said Manuel, “supply chain is a nest egg for corruption and the unfortunate part is that the poor are always victimised by the failures of supply chain management.”

Before leaving the podium for Judge Dennis Davis, Manuel concluded by pointing out that Budget issues are political and by virtue of that nature, it draws attention to the quality of our democracy.

“We can’t have growth if we live in political uncertainty,” said Judge Davis. He pointed out that the notion of radical economic transformation should mean that South Africa must mobilise an active society that says ‘no’ to the enrichment of the elite few, but rather find a solution that will work for 50 million South Africans.

“We can’t have transformation without growth – we can’t have growth without transformation. Clearly the one cannot exist without the other. However, we need some measure of economic, political and fiscal stability to have the two work together.

In addition, Judge Davis admitted that there’s no difficulty with policy, but there is a need for experience and capacity to implement complex legislation.

“I’m sure that most people don’t mind to pay the new 45 percent bracket, but at the same time, I’m certain that you also wish for the money allocated to do specific work, to actually do specific work and not enrich the elite few. We urgently need a system of integrity and accountability,” said Judge Davis.

The Judge also noted that VAT needs to be on the table, though the distribution of the money collected through it will have to be monitored for proper allocation.

“Some economists have suggested VAT on luxury goods, but I don’t think that this is the ideal route to go because the compliance gap will dramatically increase,” said Judge Davis.

His views on VAT for luxury goods were shared by Lullu Krugel, Chief Economist for KPMG in South Africa, who said that the problem lies with the exact definition of luxury goods.

“We live in an uneven global economic environment,” said Krugel. “But I am glad that Treasury, more than anyone, is optimistic about growth. This means that we will be able to grapple around the issue of ratings agencies who are more interested in policy reforms, debt projections, deficit trajectory, efforts to increase revenue, and the general economic outlook.”

During the panel discussion, Manuel emphasised that SARS cannot be made a political football.

In conclusion, Saloojee emphasised that all South Africans should serve as an accountable committee that holds the administration to account, and that everyone needs to become a vessel for change.

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