The rich will pay less tax

Gareth Stokes, FAnews Online Editor

South Africa is described as a welfare state. With five million taxpayers (including companies) funding around 12 million social grant recipients it’s difficult to dispute the fact. Today I’d like to add to the definition to distinguish South Africa – an “emerging welfare state” from the United Kingdom, which must surely quality as the developed world equivalent. I blame Sky News for my current state of mind. A couple of days ago they ran an inset containing statistics on Britain’s working (sic) class.

Did you know 1.5 million Brits of working age haven’t ever held a job? I didn’t! I was equally flabbergasted by the next revelation... Sky revealed that some 3.2 million families “survive” without any employment-generated income. Instead they lap up £192 billion pounds worth of tax money every year. The similarities between South Africa and the UK when it comes to handouts are staggering! But the difference could be our undoing.

Not enough taxpayers to fill the pot

Government’s social expenditure budget is limited by the amount of revenue it collects from citizens. This revenue hinges on the number of taxpayers and the overall state of the economy… And the portion stumped up by taxpayers eventually comes down to employment. Britain’s latest unemployment rate stands at a mere 7.8%. The reason we’re “knee deep in it” is our “official” unemployment tips the scales at 25%! Unofficially we’re in an even bigger mess!

My rant about tax, mooching and unemployment was triggered by a Congress of South African Trade Unions (Cosatu) economic policy document released last week. The trade union wants to introduce taxes on the super rich, probably the most sensible of a raft of proposals that will make ANC Youth League President Julius Malema extremely happy. Their call for higher taxation contradicts with the title of today’s newsletter for two reasons. First – the rich in South Africa are already paying over the odds where taxation is concerned. Forget the end of month deduction and think about all the payments the “rich” – and middle class for that matter – make to accommodate service delivery failings. And second, because the draft Tax Laws Amendment Bills 2010 says so.

The bill contains several amendments to read slightly less onerously for high net worth individuals. Hennie Van Deventer, Head of Tax in the Cape office of BoE Private Clients, which provides financial services exclusively to high net worth individuals, has applauded the National Treasury for taking into account the views of a range of professional organisations, including the SA Institute of Tax Practitioners (SAIT), the SA Institute of Chartered Accountants (SAICA) and the SA Institute of Professional Accountants (SAIPA), and said that the process proves the value of public participation.

Tax relief for driving that fancy car

The relief stems from a slight reduction in the tax initially proposed on company cars – from 4% to 3.5%. “High net worth individuals are obviously more likely to enjoy the benefit of a company car,” said Van Deventer. “The new law stipulates this perk shall be taxed at an effective rate of 80% or 3.5% of the value (now including VAT) of the vehicle, which is lower than the 4% contained in the draft bill!” Changes in the basis for determining the tax value will bring the tax in line with the tax on car allowances.

Another “break” for the super rich stems from the decision to allow interest exemptions on loans granted by them. Van Deventer notes “Following submission on the draft Bill, the interest on such loans will, for the time being, still qualify for the interest exemption – but National Treasury has indicated it will be looking very closely at this provision in the future.” The Bill also clarifies the position on voluntary disclosures. A person “coming clean” on outstanding tax payments may still be penalised, but won’t be criminally prosecuted.

Singing from the same hymn sheet

We’re going to wait a while before government statements and actions tie up. On the one hand the “tax the rich” refrain echoes through the corridors of power, on the other legislators are softening their stance. On the one hand Cosatu and the ANC Youth League want nationalisation and vicious land reform, on the other the Finance Minister says nationalisation is not government policy. Our parting shot… You can tax the rich as much as you want – but be warned – an over taxed rich man is a poor man!

Editor’s thoughts: Time and time again we stand up on our media pedestals and tell government the solution to poverty lies in job creation. And we helpfully point out that job creation hinges on education, softer labour practices and a friendlier investor environment. Do they listen? Can we solve South Africa’s social ills by taxing the rich more? Add your comment below, or send it to gareth@fanews.co.za