Tax reforms in the 2017/18 Budget
Tax policies and the administration thereof are key measures in support of fiscal consolidation. Although no tax rate increases or the introduction of new taxes were proposed, the aims of the proposed tax policy reforms are to increase the existing tax base, “curb tax base erosion, reduce profit shifting and tax planning opportunities as well as improve the efficiency in the tax administrative function”.
Tax reform proposals come at a time when the country is faced with fiscal challenges and constraints that are limiting Government’s ability to meet its objectives of boosting the economy and stimulating economic growth.
An analysis of the estimated revenue and grants for the 2017/18 period revealed that Government collects the majority of its revenue, 34%, from taxes on income and profits, resulting in heavy reliance on registered taxpayers. To increase the tax base, Finance Minister Calle Schlettwein proposed a presumptive tax, a system aimed at simplifying the process for small units to meet their tax obligations and reduce tax avoidance as well as distribute the tax burden. The administrative burden for the taxpayer would be lower as the tax is generally less complex and could be based on a percentage of the business turnover for example.
A further method of contributing towards the policy reforms is curbing the tax base erosion. However, a careful examination of the effectiveness of the exemptions and deductions available to corporates - which could be leading to the unwanted reduction of the effective tax rate - should be performed before their elimination, to avoid a negative impact on investments into the country.
As a measure of improving tax administration, the introduction of the Revenue Agency and the Integrated Tax System (“ITAS”) is envisaged to improve efficiencies in revenue collection and service delivery. ITAS would also eradicate inefficiencies resulting from the use of the current manual system. In as much as businesses may want to be tax compliant, the inefficiencies of the manual system has historically proven to hinder the effective collection of taxes through failure to maintain an accurate record for taxpayers due to the misplacement of records and delayed assessments, to name a few.
The Tax Arrear Recovery Incentive Programme is a welcome move as this helps the taxpayers to clear their debts and move forward in being compliant. Taxpayers are urged to take full advantage by ensuring that all the outstanding matters are resolved in order to use the reprieve on the full quantum of the penalties and interest to clear the historical build up.
The introduction of Capital Gains Tax (“CGT”) provides for wealth-based taxation on certain categories of capital assets which could curb tax planning opportunities. The implementation of CGT has been mentioned for a number of years, but is generally associated with higher administrative requirements, given the complexity of CGT. As part of the implementation and consultations, the practicalities around administration and collection should be very carefully considered.
Government would therefore need to strike a balance between its need to collect revenue and stimulating economic growth. It is essential to not only broaden, but to diversify the revenue base to ensure that the proposed reforms do not negatively impact the taxpayers.
The implementation of the tax reforms would have a positive effect on the economy if the reforms support investments, increase employment and are not discouraging to those that are trying to create wealth. A proper mix of the tax reforms and tangible socio-economic benefits would draw support from all sectors of the economy.
Contact us:
Robert Grant: Director
[email protected]
Memory Mbai: Manager
[email protected]
Tabitha Mugandiwa: Senior Consultant
[email protected]
Disclaimer: The content of this article is subject to the disclaimer which can be found at http://www.kpmg.com/na.
Tax reform proposals come at a time when the country is faced with fiscal challenges and constraints that are limiting Government’s ability to meet its objectives of boosting the economy and stimulating economic growth.
An analysis of the estimated revenue and grants for the 2017/18 period revealed that Government collects the majority of its revenue, 34%, from taxes on income and profits, resulting in heavy reliance on registered taxpayers. To increase the tax base, Finance Minister Calle Schlettwein proposed a presumptive tax, a system aimed at simplifying the process for small units to meet their tax obligations and reduce tax avoidance as well as distribute the tax burden. The administrative burden for the taxpayer would be lower as the tax is generally less complex and could be based on a percentage of the business turnover for example.
A further method of contributing towards the policy reforms is curbing the tax base erosion. However, a careful examination of the effectiveness of the exemptions and deductions available to corporates - which could be leading to the unwanted reduction of the effective tax rate - should be performed before their elimination, to avoid a negative impact on investments into the country.
As a measure of improving tax administration, the introduction of the Revenue Agency and the Integrated Tax System (“ITAS”) is envisaged to improve efficiencies in revenue collection and service delivery. ITAS would also eradicate inefficiencies resulting from the use of the current manual system. In as much as businesses may want to be tax compliant, the inefficiencies of the manual system has historically proven to hinder the effective collection of taxes through failure to maintain an accurate record for taxpayers due to the misplacement of records and delayed assessments, to name a few.
The Tax Arrear Recovery Incentive Programme is a welcome move as this helps the taxpayers to clear their debts and move forward in being compliant. Taxpayers are urged to take full advantage by ensuring that all the outstanding matters are resolved in order to use the reprieve on the full quantum of the penalties and interest to clear the historical build up.
The introduction of Capital Gains Tax (“CGT”) provides for wealth-based taxation on certain categories of capital assets which could curb tax planning opportunities. The implementation of CGT has been mentioned for a number of years, but is generally associated with higher administrative requirements, given the complexity of CGT. As part of the implementation and consultations, the practicalities around administration and collection should be very carefully considered.
Government would therefore need to strike a balance between its need to collect revenue and stimulating economic growth. It is essential to not only broaden, but to diversify the revenue base to ensure that the proposed reforms do not negatively impact the taxpayers.
The implementation of the tax reforms would have a positive effect on the economy if the reforms support investments, increase employment and are not discouraging to those that are trying to create wealth. A proper mix of the tax reforms and tangible socio-economic benefits would draw support from all sectors of the economy.
Contact us:
Robert Grant: Director
[email protected]
Memory Mbai: Manager
[email protected]
Tabitha Mugandiwa: Senior Consultant
[email protected]
Disclaimer: The content of this article is subject to the disclaimer which can be found at http://www.kpmg.com/na.
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