State urged to consider raising corporate taxes amid unemployment and poverty

The government must consider increasing corporate taxes and put in place an economic policy that deviates from inflation targeting to curb the rising unemployment and poverty in SA, says the Alternative Information and Development Centre (AIDC).

Last week, Stats SA released worrying unemployment numbers which showed the country’s official rate had surged to 29% in the second quarter of 2019, the highest jobless rate in more than a decade.

The jobs numbers came amid intense debate within the governing ANC on the role of the Reserve Bank. Some within the party are calling for the central bank’s mandate to be expanded beyond inflation targeting to include growth and employment.

Cape Town-based nongovernmental organisation the AIDC says the unemployment, poverty, and inequality crisis facing the country calls for a huge increase in state led spending on public social infrastructure.

“We need the state to invest in a low-carbon, industrial strategy. This entails, but is not limited to, a wide-scale housing programme building real houses in city centres not serviced sites on the periphery, expanded public transport and  an Eskom-driven renewable energy programme,” the AIDC said at the weekend.

It is important to note that “taxation of the wealthy and corporations will be a crucial pillar in this process”, it said.

“Increasing corporate taxes, which have fallen since 1994 will have to be a priority. So too will the combating of illicit financial flows and, base erosion and profit shifting. 

“Achieving this ambitious, but realisable programme will need economic policy that strongly deviates from the norm of inflation targeting and austerity. Options available include a combination of increasing taxes on the super wealthy, the introduction of prescribed assets, making use of the Public Investment Corporation fund. This must include the introduction of a basic income grant and the abandonment of BEE in favour of affirmative action that serves the interests of the poor majority,” the AIDC said.

“These and other mechanism aimed at undoing the damage of neoliberalism will require an alliance of the unemployed, labour, communities and civil society to fight for them.”

According to the National Treasury, corporate income tax contributes more as a share of GDP in SA than in most other countries. However, there is a global trend to reduce corporate income tax rates as countries move to discourage profit shifting to lower-tax jurisdictions, and encourage new investment. The US, for example, has reduced its rate from 35% to 21%, the Netherlands from 26% to 21%, and the UK from 30% to 19%.

The Treasury has stated previously that while some African countries have similar or slightly higher tax rates these are often effectively reduced with incentives and/or tax holidays.

At 28%, SA is becoming an outlier, providing an incentive for companies to shift profits abroad and pay lower taxes elsewhere, the Treasury said,

“In recent years, government has taken steps to avoid erosion of the corporate tax base and prevent profit shifting, and to remove or redesign wasteful tax incentives. In addition to effective anti-avoidance legislation and adequate enforcement capacity, this requires policy decisions that do not undermine investment and competitiveness.

“Furthermore, studies show that the burden from higher corporate taxes does not fall entirely on shareholders. Companies can respond by raising prices, lowering wages or retrenching workers,” it said.

phakathib@businesslive.co.za