South African Judge Says New Tax Regime Too Complicated

by Jason Gorringe, Tax-News.com, London

24 October 2001

South African Judge Denis Davis, a member of the Katz Commission whose report on taxation has been a major influence on recent reforms of the tax system, says that the introduction of changes has been handled in a way that has introduced unnecessary complexity into the system - the Commission would have preferred to see greater simplicity. There was an “information overload”, Davis said. As a result he did not expect much in the way of serious tax reform in the next two to five years.

Judge Davis says that even though it will take years for the new system to settle down, and that it doesn't have the capacity to absorb yet more changes, there are still three areas in which the Government needs to make reforms.

Pointing in particular to the taxation of retirement funds, the corporate tax rate and the role of incentives in the tax system, Judge Davis said yesterday that the tax on retirement funds should be revised to encourage savings, which were vital for fixed investments, and that the authorities would also have to look at the role of incentives in the tax system, deciding whether or not to reduce the effective rate of corporate tax by eliminating the secondary tax on companies (STC). STC had been a good tax in that it encouraged reinvestment of profits, he said, but eliminating it would heighten the international competitiveness of SA's tax regime.

Despite his criticisms of the way in which change had been introduced, Judge Davis said the success of the SA Revenue Service, now a truly efficient organisation, in collecting tax had been “glittering”. Each year it exceeded its budget target as tax evasion and avoidance was squeezed out of the system, but he believed this process was almost at an end.

Looking further forward, the Judge said that it would eventually be desirable to harmonise taxes across Africa, to create a neutral regime for incoming investment. He also noted the importance of controlling and policing tax havens, and the importance of establishing a regime for the taxation of e-commerce.

If the Judge is looking for a job, it sounds as if he would be more than welcome in Brussels.

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