Time is right for cut in corporate tax rate, expert suggests

Next month’s budget by finance minister Tito Mboweni is the right time to announce a reduction in the corporate tax rate, a senior tax partner of auditing firm Mazars says.

Bernard Sacks said in a media briefing on Tuesday that a reduction in the corporate tax rate, which currently stands at 28%, was a necessary measure to increase investment and stimulate the economy. This was particularly so as President Cyril Ramaphosa has launched an initiative to attract foreign direct investment.

Sacks conceded that such a step would be a bold move in the context of sluggish economic growth and the need for higher tax revenues, but stressed the need for SA to become more internationally competitive.

Mazars’s national head of tax Mike Teuchert noted that SA’s corporate tax rate is not internationally competitive and does not provide an incentive for foreigners to invest in the economy.  However, he added that it would be taking a big gamble to decrease corporate tax rates in the hopes of increasing investment and employment.

Concern was raised that economic and tax policies could be influenced by the fact that 2019 is an election year, with the ruling party being sensitive about introducing  policy changes that would have a negative effect on voters. In this regard, Teuchert cited the possibility of an increase in the capital gains tax inclusion rate for individuals. While this would not generate significant additional revenue, it would send a political message that the wealthy are being targeted.

However, Teuchert’s belief is that it is going to be a “boring” budget with no extraordinary announcements. Sacks believes that a big increase in the fuel levy would be detrimental to the economy but might be necessary to address the large and mounting deficit in the Road Accident Fund.

Sacks emphasised the need for greater enforcement by Sars to ensure that the fiscus receives its dues from the illicit tobacco economy and from illicit financial flows. Teuchert highlighted the importance of a permanent Sars commissioner being appointed as soon as possible so that the implementation of long term strategies can begin.

Sacks expressed the hope that, given the past instability in the finance ministry, Mboweni would stay at the helm for at least three years so he can cement his policies, entrench stability and stimulate growth.

ensorl@businesslive.co.za