Make smart tax lawyers do real work
THE letter by André Quinlan, “Land tax would solve many problems in SA” (January 15), overlooks the fact that this tax is already in place. It’s called “municipal rates”. And it’s not the panacea Quinlan suggests.
Ratepayers, for example, want to develop their land — to society’s advantage, because everybody benefits. The problem is that the “land taxers”, even though their own costs remain constant, enrich themselves off those ratepayers who increase property values. Ratepayers are effectively punished for their good work.
It gets worse. In the endgame of municipal land tax, after a lifetime of being the ones making their suburb “highly desirable”, ratepayers who can’t keep up with the increasing valuations are forced off their land.
South Africa’s entire Byzantine tax regime needs to be reset. The key characteristic is the classification of tax collection into three distinct areas of recognition:
Stellar companies (about 15% of the tax base) that the country desperately needs and should encourage at every turn. Their reward is a hugely reduced tax rate;
Shameful companies that inflict social harm for profit and couldn’t care less. Industries producing alcohol, sugar, bad-fat products, and wealth-destroying insurance/hire purchase policies need to feel the heat of a punitive tax rate; and
The majority, who fall in neither of the above categories, pay the average rate.
Because it is based on gross turnover, tax is a flat rate of only a few percent. Basing the rate on turnover removes the opportunity for accountants to fiddle taxes by creatively manipulating the “net profit”.
All the complicated tax incentives are scrapped, as are VAT, capital gains tax, dividend, estate duty, alcohol, sugar or any other “special tax”. Taxation for employees falls away completely. Revenue derives from the turnover tax on companies and the selfemployed. Customs tariffs and so on remain unaffected.
A board decides who goes into the two extreme groupings, which have fixed quotas. Occupancy has a musical-chairs dynamic. If the quota is full, then, for a new entrant to get in, an existing occupier has to exit. Companies cannot rest on their laurels and will have to defend their status against challengers. This keeps everybody on their toes and acting in the better interests of the country.
Simple and easily administered, this system would redirect thousands of clever people from feeding an unproductive bureaucracy into real jobs, thus building this country’s wealth. — John Godsiff, Clovelly