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Taking with both hands – taxation by stealth

09 April 2010 Gareth Stokes
Gareth Stokes, FAnews Online Editor

Gareth Stokes, FAnews Online Editor

Finance Minister Pravin Gordhan’s 2010/11 budget speech left all who heard it with a warm fuzzy feeling. The so-called sin taxes (alcohol and tobacco) were hiked and taxes on fuel upped by 25c/litre, but overall Joe Average didn’t fare too badly. Gordhan

Mixing public company with private profit motive

The taxpayer is footing much more than the national accounts suggest. “Often expenditure on state owned entities is accommodated under the line,” observed Roodt. This enables government to commit to massive infrastructure projects without including the expenses in its ‘normal’ expenditure in the annual budget. Companies like Transnet have direct access to legislated revenues. In other words, companies run for profit by government get to multiply their profits at the taxpayers’ expense.

Transnet’s R15.4bn (up 20% since February 2010) multi-product pipeline between Durban and Gauteng is a typical example of this ‘tax by stealth’ approach. Nobody is questioning the long-term benefit of the pipeline. Instead, objections centre on the repeated cost escalations, project delays and method of financing. Taxpayers, who already pay a substantial amount of their hard-earned cash to government, are part-funding the pipeline out of a Gordhan’s 25c/litre fuel tax hike, effective 1 April this year. A 7.5c/litre special levy goes directly to Transnet’s coffers – and though government will dissolve the special levy in time – it will be replaced with a 4c/litre maintenance levy once the pipeline completes in 2012. Engineering News Online reports that the levy would be exclusively for Transnet’s benefit, and should be seen as a shareholder recapitalising a State-owned enterprise.

The bully in this story is the National Energy Regulator of South Africa (NERSA) which has met Transnet applications for increases in its slice of the fuel tariff in much the same way as Eskom’s requests for electricity price hikes, favourably! Incidentally, the tax on fuel isn’t the only money Transnet is getting from government for its pipeline. There’s an additional R4.5bn grant (over three years) that goes directly to the project. Taxpayers (consumers) will have to dip into their pockets whether government subsidises the project or not. “Even if the oil companies ‘carry’ the tax they will simply ‘shift’ the burden down to the consumer,” said Roodt. When you factor in government’s 167.5c/l general fuel levy, the 72c/litre Road Accident Fund Levy, and the 4c/litre customs and excise levy, government is taxing 93 Octane fuel at 31.6% of the pump price, and diesel at 32.8%.

Taxation on private transport is adding up

South Africa is drowning under so-called privatised taxes too. The nail in the coffin for many road users is the yet-to-be-finalised 50c/km toll to use the SANRAL freeway network in Gauteng. Toll roads are an example of a privatised tax. “Yes, toll roads are a ‘good’ tax, but then we have to reduce other taxes,” said Roodt. Instead we’ve seen a raft of new taxes dramatically increasing the total tax burden on the economy. Motorists are seen as easy pickings at both national and provincial level. They already pay R2.43/l to government via a range of levies, but could soon face a carbon emissions tax on new motor vehicles. “The rational is sound,” said Roodt, before asking why government had to create a new tax with all its associated red tape and administration. It would have been easier to increase the fuel levy instead.

Gauteng motorists will also have to foot the bill for a new license plate system. Details are sketchy at this stage, but they could pay as much as R350 per plate – and have to fit new plates every five years. If motorists want to comply with the law they have no choice but to pay.

It’s not a tax, but…

We have yet to mention the cost to individual taxpayers of government mismanagement at state-owned enterprises. Bailouts to arms manufacturers, public broadcasters, national carriers and development finance agencies amount to billions of rand each year. The budgets for big-ticket projects mushroom at rates well in excess of official inflation. Roodt believes voters will have to make the difference. We have to let government know we’re unhappy. “Let’s vote to close unprofitable state-owned enterprises, or at least encourage more competition in these industries,” he said. The country needs fewer taxes – not more!

Editor’s thoughts: Trade unions want to address South Africa’s revenue shortfalls by levying higher taxes on the country’s top earners. If they did the math they would realise this won’t solve their problems. Instead they need to tackle the problem from the employment side. Greater employment means higher tax revenues across all tax classes. Would a higher rate of personal income tax solve South Africa’s revenue shortfalls? If you have strong views on the topic, please share them below, or send them to gareth@fanews.co.za

Comments

Added by Vernon, 14 Apr 2010
All the resources and infrastructure exist to make SA a world player with a strong economy. It has been done before. Rather than continuously peering into the distance to find a new source of income, government would do well to look inward and improve the gross mismanagement that prevails at all levels and in all sectors. The tax payer cannot be bled forever. We are in the position of being forced to "reward" ineptitude. Every time a governmental someone makes a bad decision, or fails to do his/her job, we get to carry the can. If government was a corporate, it and all its related entities would have faded into bankrupt non-existence. The real-world situation, however, is that they get to blunder along with near-zero accountability and imprison those tax payers (shareholders) who wish to refuse pouring yet more money into a bottomless pit. Money problems can not be solved by more money. Money problems get solved by changing the things you do that create the money problem... in precisely the same way that you cannot borrow yourself out of debt.
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