Tax regime to be reviewed

For the first time in two decades, the entire tax system will be put under the magnifying glass.

Finance Minister Pravin Gordhan announced yesterday the formation of a commission of eight, headed by retired judge Dennis Davis, to review the tax system, but an overhaul of the system is not envisaged.

"Much has changed in the past 20 years," said Gordhan, pointing to the way companies structured their business across borders, trends in global trade, financial innovations and new businesses, such as e-commerce.

Companies that avoided paying tax by constructing complex financial structures, and using stratagems such as "profit shifting" to move money to countries with a lower taxation rate, are Gordhan's long-time concerns.

He will meet other leaders of the G20 group of developed and emerging nations in Moscow from tomorrow.

Tax avoidance by multinationals and wealthy individuals will be among the topics discussed.

"Not all of them pay what they should," he said yesterday.

One of the things the tax review committee will look at is whether the current tax system is sufficiently progressive with respect to imposing higher tax rates on higher incomes.

South Africa has between 6million and 7million taxpayers, according to SARS.

Some of them, Davis said, felt that the current rate of taxation was "highly unfair".

Asked whether the tax system was not sufficiently progressive, he said it was open to debate but that discussions of the topic were often "ill-informed".

Davis said his committee would take the "full context" into account when determining whether middle-class South Africans were too heavily or too lightly taxed.

"We are not the only country doing this," said Davis.

He pointed to moves in Australia and England to get wealthy individuals and companies to pay their "fair share".

The committee will also consider value-added tax, the financial sector, mining and the appropriateness of using the tax regime to promote small and medium enterprises.

The committee will look at the economic and social impact of the taxation system, Davis said.

According to Gordhan, the committee's job was to find out whether the tax system promoted inclusive economic growth, employment creation, development and fiscal sustainability.

"The committee will take into account recent domestic and global developments and, in particular, the long-term objectives of the National Development Plan," he said.

The committee will make recommendations to Gordhan or his successor.

Davis said he intended to have some draft recommendations ready before the end of the year.