WITH every revelation from the Zondo Commission of Inquiry into State Capture comes new evidence of the plot to redirect public funds into the private hands of politicians. It is remarkable that this arrives at a time when SARS has over-collected taxes by a whopping R38 billion, raising questions as to the overall tax regime in the country.
Botswana is doing incredibly well for its size with a corporate tax rate of 22%, sharing the same tax bracket as Indonesia, another success story and only slightly above Finland the ‘happiest country in the world’ at 20%. Botswana is one of the fastest growing economies in the world, averaging 5% over the past decade, this is in no small part due to its progressive tax system and intolerance of corruption.
South Africa at 28% corporate tax is still two points above the USA at 25% (a developed country) and has one of the highest maximum personal income tax rates in the world at 45% compared to Botswana, 25%. All of which acts as a disincentive to investment.
SARS has over-collected tax over the past 12 months following the lowering of interest rates during the Covid pandemic. Unlike countries where tax is put to good use, the revelations of the Zondo Commission show how tax has invariably ended up in the hands of politicians, whose sole motivation appears to be to rip off the exchequer.
Many on the left are running on a ticket of raising taxes whilst also raising salaries, essentially targeting the economy as if it were the enemy in an inflationary proposition if ever there was one.
The country has now embarked on an interest raising round driven by imported macro-economic inflation caused by the Russian-Ukraine war and quantitative easing in the USA.
In South Africa, all citizens irrespective of socio-economic position are taxed on the sale of goods via Value Added Tax which is a high 15% compared to Switzerland at 7.7%. Other taxes include a Fuel Tax and Capital Gains Tax. The Fuel tax was reduced temporarily to accommodate higher gas prices and the benefits of this experiment still need to be assessed.
Lower taxes are counter-intuitive, since they tend to drive local investment, act to boost entrepreneurs who sustain businesses, which in turn create jobs, with the resulting increase of economic activity. High taxes tend to constrain investment as they act as a disincentive. Merely lowering interest rates during the Covid epidemic resulted in a massive boost for local investment.