by LUKE ZUNGA
JOHANNESBURG, (CAJ News) – I FEEL sorry for all African presidents. They are circled and closed out by technocrats and a few yes-men.
When they are in power, presidents do not have direct access to the public, other than at political rallies or on matters of security and public relations.
What presidents receive is screened by technocrats around him. The economic decisions they take or the state of affairs of Africa is largely due to the outcome of the technocrats.
Presidents do not know what their Director Generals or Permanent Secretaries or Heads of departments receive in those respective departments.
President Cyril Ramaphosa is told there is no alternative other than to raise Value Added Taxes(VAT) but this is not true. Halala to those who resisted.
The Davis Tax Committee was instituted by the Treasury to look at all issues of taxation, particularly matters affecting small businesses.
Various reports were issued, some rather too academic. The Small and medium-sized enterprises (SMEs) Report issued in July 2014 has insights which can help resolve the tax shortfalls.
On page 11, the report said that the number of businesses which submitted tax returns in 2011 were 600,526. It added on the same page that 434,684 or 72% of the companies which rendered tax returns declared no profit and therefore paid no taxes.
Only 165,852 companies (27% of 600,526) declared profit, of which 64% of corporate taxes were paid by 481 companies only. The corporate tax burden is born by a few companies.
There is the problem. There is a large reserve of companies that are not paying taxes.
Subsequent Tax highlights show the same picture. In 2018, 780,480 companies submitted tax returns but only 196,680 companies (25,2% of the 780,480) reported profit and paid some taxes.
The rest, 583,799 companies paid no taxes. There are a large number of companies which paid no taxes because they made no profit.
More glaring was that 363,703 companies (46,6% of 780,480) reported no taxable income. This means they were not operating.
It also means the number of formal businesses in South Africa is only 416,777 (780,480 -363,703). The tax base is very small. This is one of the weaknesses of the director-generals (DGs) system of governing.
There are many companies that were not operating or made no profits. Obviously, the technocrats did not show the President these reports or they were just shoved under the desk.
If I were the President, I would have instructed the Department of Trade, Industry and Competition (dtic) to visit these companies, not as tax auditors, but to find out why they were not making profit or not operating, to assist them wherever possible to get into the profit mode.
An increase in VAT burdens the ordinary citizen and is a poor tool to correct the underlying tax base.
It also adds to the argument presented to dtic, that the number of formal businesses should be about 5% of the population, to have enough growth, adequate employment and a broader tax base.
As calculated above 416,777 companies represent 0.7% of the 60 million population of South Africa, then, instead of 3 million formal businesses. South Africa is short by 2,5 million formal businesses.
Britain has 10%, the United States (US) 9%, France 9%, Italy 6%, Germany 4%, Japan 4% etc (What Economists are Missing, p53).
The latter have huge motor companies making up to 5% of their populations. Foreign investors will not bring down this shortfall. Only harnessing black citizens into manufacturing and supporting businesses could upscale these numbers.
However, it is not possible to close this 5% gap because of two issues;
- The first is that all financial institutions and government financing agencies do not finance to start, blocking the harnessing of black people as they have no capital to start.
- The second is that there is no model to facilitate those who want to start factories. The bank model which is used by every financial institution and government funding agencies does not facilitate the start of factories or any other businesses and is not designed for that.
Obviously, the South African President does not know that the Davis Tax Reports have this information, as an alternative to raising VAT.
The South African Development Foundation NPC designed the methodology and provided the first business plans to DTIC from which to commence. Sadly, DTIC has ignored them, but the foundation is still open for discussions in this regard.
– CAJ News