The role of incentives in getting SA’s economy going again
South Africa has had mixed success with tax incentives, and at this point in its history, it is crucial to consider which will be the most effective in getting the supply side of the economy going.
This year’s online Tax Indaba explored the use of business tax incentives to revive the country’s economic fortunes, especially in the aftermath of the destruction caused by Covid-19.
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Government has indicated that it will review the incentives on offer over the medium term, and repeal or redesign those that are redundant, inefficient or inequitable.
Foregone revenue
According to figures from National Treasury quoted at the Tax Indaba, 4.5% of the R1.3 trillion tax revenue is foregone in the form of incentives.
Duane Newman, director of Cova Advisory, said around R12 billion is foregone in the form of corporate income tax incentives, R35 billion to customs and excise (mainly for the automotive industry) and R55 billion for Vat on zero-rated items such as basic food.
He said the general view is that incentives create distortions in the economy and attract “rent seekers” who follow incentives but leave when the incentive expires.
Newman, who chairs the business incentive and grants workgroup of the South African Institute of Tax Professionals (Sait), considered the role of incentives in the automotive, call centre and film industries.
Where would they be without these incentives, and has government picked some industry “winners”?
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