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Why EY thinks it's time to start dropping SA’s corporate tax rate

18 February 2020 7:07 PM
Tags:
Tax
sars corporate tax south africa
drop croporate tax
ehow eghane
If the corporate tax rate in South Africa gets lowered, would it lead to higher tax collections?

The corporate tax rate in South Africa is a flat rate of 28% for all companies.

Ekow Eghan, Managing Partner - EY's South African Tax practice, is advocating a reduction in the corporate tax rate.

There's actually no real link between tax rate and economic growth. Foreign investors generally think of political stability and access to labour. A favourite corporate tax rate is always a plus. In South Africa, corporate tax has been the third highest revenue generator in terms of taxes for government. A very small fraction of the corporate population actually contributes to corporate income taxes.

Ekow Eghan, Managing Partner - EY's South African Tax practice

Corporate income tax is difficult and costly to collect, compared to say VAT. You have this incredibly difficult tax to collect, with a very small population contributing. There's a view that corporates pay taxes. We know the corporation is a fiction. Ultimately that tax is either borne by the shareholders, the consumer or the employees. We know the shareholders pull the strings, so it's a lot easier for them to pass it to labour or the consumer by hiking up prices. National treasury produces no research in this area, even in developed nations it is tricky to get data.

Ekow Eghan, Managing Partner - EY's South African Tax practice

Ultimately given the small number of contributors to this tax, a reduction actually makes very little difference to the vast majority of companies in SA because the vast majority of them actually record losses or break even so won't have to pay taxes. If we believe the argument that the person who bears the economic burden of corporate tax is labour or the consumers - then it certainly merits the question: why not consider a reduction?

Ekow Eghan, Managing Partner - EY's South African Tax practice

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This article first appeared on 702 : Why EY thinks it's time to start dropping SA’s corporate tax rate


18 February 2020 7:07 PM
Tags:
Tax
sars corporate tax south africa
drop croporate tax
ehow eghane

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