PricewaterhouseCoopers Budget 2008 Panel discussion

PricewaterhouseCoopers post-budget panel discussion raises some strong viewpoints – social grants, service delivery and VAT at 15%

At a post-budget panel discussion hosted by PricewaterhouseCoopers, economist Roelof Botha voiced his surprise that Trevor Manuel did not take the opportunity to raise the VAT rate from 14 to 15%. “It is one of the most efficient forms of taxation and an increase would not affect the poorer sections of society, due to the zero-rating of goods consumed by relatively poor people”

Botha’s suggestion was countered by fellow panel members, Keith Engel – National Treasury’s Chief Director of Legal Tax Design, Matthew Lester- professor of tax at Rhodes University and SARS COO Edward Kieswetter.

Lester reminded Botha of what happened in 1991 when General Sales Tax was replaced by VAT. “The introduction of VAT tore the country apart. We can’t tinker with it now and it will stay at 14% for a very long time. Moving it up will lead to a national strike and government can’t afford to take it down.”

Engel said it was not necessary to increase the VAT rate in a budget surplus environment. “But we should be looking at initiatives like zero-rating medical supplies and books. My idea would be to have a lower rate but imposed on a broader base, unlike what they have in the UK where there are many exemptions.” Kieswetter acknowledges that VAT can sometimes be a regressive tax and does not achieve redistribution of wealth. “We should leave it at the present rate for the moment.”

Botha implores the Minister of Finance to put the introduction of a basic income grant high on the agenda. “Most countries have a blanket scheme like this. The fiscal revenue overruns of the past three years would cover each unemployed person in the country at R 200 per month for the next five years.”

But Engel cautions on the grant at this stage. “Once you have an income grant you can never go back.” Kieswetter says that investment in education would be the ultimate solution to resolving poverty and education and a contributory rather than a hand out system for social assistance would be preferred.

All panel members predictably commended the phase out of Secondary Tax on Companies. Lester says it was an extraordinary measure when introduced, unaccepted by the international investment community, and the move to a shareholder dividend tax is in line with the rest of the world.

They all admitted to panel chairperson, Siki Mgabadeli, CNBC Africa anchor, that there is a problem with service delivery, particularly at provincial and municipal levels, where departments are just not spending their budgets. The contentious suggestion of “use it or lose it” was raised.

“The money is there” says Lester. “But it takes a long time to turn into results and people are getting impatient. The previous government would just go ahead with projects. Now we have complicated logistics, consultation and a skills shortage.” Engel says delivery is being impeded by too many initiatives. “It is better to scale down aspirations and deliver on fewer things rather than take on too much.”

SARS is extremely pleased with the roll-out of e-filing. “It was a bold step fraught with challenges. We now have 800 000 individual taxpayers who have embraced e-filing and they are assessed within 24 hours and have a refund in the bank within 48 hours. On due date this year, being 31 January, we saw 60 000 taxpayers using the system. Our goal is 1 million individuals filing electronically which is proportionately way better than the UK’s 3,5 million.”

On the recent budget overall, Gerald Seegers, PwC tax partner, commends the incentives for venture capital investment and addressing the skills shortage and the R 5 billion it cost to lower the company tax rate closer to international norms.

Lester says it exceeded his expectations and the targets are certainly being achieved though a good conservative strategy and sound fiscal management. “There was R7 billion tax relief given to individuals after an incredibly tough year.” But he questions whether a country such as SA should even be aiming for a budget surplus at this stage of its development.

Final word goes to Botha who says “In a budget surplus environment, we have way too many potholes!”