Value Added Tax in South Africa

Transcription

1 Value Added Tax in South Africa Africa Tax Dialogue : Maputo Presenter: Cecil Morden Chief Director, Economic Tax Analysis November

2 Contents 1. Fiscal Policy and Redistribution in South Africa 2. Key features of a good tax system 3. Overview of the main tax instruments & tax revenue trends in South Africa 4. VAT revenue and VAT efficiency ratio 5. History of the introduction VAT in South Africa 6. Requests for VAT Zero-rating 7. VAT and regressivity 8. Multiple + VAT rates, a higher rate of luxury goods & services 9. VAT treatment of merits goods 2007 study in South Africa 10. Household consumption expenditure: 2010/11 Income and Expenditure Survey (IES), Stats SA 11. Ad valorem excise duties on luxury goods in South Africa 12. Summary 2

3 The World Bank, 2014: South Africa Economic Update Fiscal Policy and Redistribution in an Unequal Society (1) South Africa has made progress toward establishing a more equitable society. Since the end of apartheid, the government has used its tax resources to fund the gradual expansion of social assistance programs and scale up spending on education and health services. It thus was able toreduce poverty considerably. the tax system is slightly progressive, and spending is highly progressive. In other words, the rich in South Africa bear the brunt of taxes, and the government effectively redirects these tax resources to the poorest in society to raise their incomes. On the tax side, fiscal policy relies on a mix of progressive direct taxes - such personal income taxes and slightly regressive indirect taxes - that when combined generate a slightly progressive tax system. 3

4 The World Bank, 2014: South Africa Economic Update Fiscal Policy and Redistribution in an Unequal Society (2) Direct taxes (personal income and payroll taxes) are progressive, since the richer deciles pay a proportionally higher share of total direct tax collections than their share of market income. And because these taxes make up a fairly high share of GDP, they help narrow the gap in incomes between the rich and the poor. Indirect taxes are slightly regressive: the four poorest deciles contributed about 5.0 percent of total indirect tax collections, compared with their share of 4.8 percent in totaldisposable income. This regressivity at the lower end of the income distribution largely reflects the impact of excises, as value-added and fuel taxes are progressive. South Africa uses its fiscal instruments very effectively, achieving the largest reductions in poverty and inequality of the 12 middle-income countries. (Ethiopia, Indonesia, Guatemala, El Salvador, Peru, Armenia, Bolivia, Mexico, Uruguay, Costa Rica, Brazil, South Africa). 4

5 Key features of a good tax system Consider the system as a whole: A good tax system should be structured to meet overall spending needs and the earmarking of revenues for particular purposes should be avoided. Not all taxes need to address all objectives. Not all taxes need to be progressive as long as the overall system is. Generally, the right tools for achieving distributional objectives are direct personal taxes and benefits / spending. PIT can be designed to achieve the desired degree of progressivity; other aspects of the tax system can be focused on achieving efficiency. (Source: Institute for Fiscal Studies (IFS), Mirrlees Review: Reforming the tax system for the 21 st century, Tax by Design) Tax reforms since the late 1980s have focused on broadening the tax base(s) whilst lowering marginal tax rates (BBLR). It is argued that such an approach reduces the economic distortion / inefficiencies of the tax system, minimise incentives for tax avoidance & tax evasion and may enhance revenue collections. The notion of a broad base and modest rate holds equally for anefficient VAT system 5

6 Overview of main taxes in South Africa Personal income tax, corporate income tax and valued added taxes are the three main sources of tax revenue together accounting for 80 % plus of total tax revenue Personal income tax and value added tax the more stable sources of revenue Corporate income tax tends to be relatively volatile and lag the business cycle by about six to twelve months Fuel tax revenue is stable but not necessarily a buoyant source of revenue. --- more energy efficient vehicles, more people making use of public transport, alternative sources of fuel Excise duties primary objective to discourage consumption / influence behaviour e.g. reduce or limit of alcohol and tobacco consumption revenue objective secondary. Customs duties industrial policy revenue also a bit volatile / most of the customs (import duty) revenue shared with fellow BLNS countries 6

7 Tax revenues 2014/15 fiscal year Tax Revenue Estimates for 2014/15 (R million) 2014 Budget Review 2014 MTBPS 2014 MTBPS vs Budget 2015 Budget Review 2015 Budget vs Budget Actual 2014/15 Actual vs Budget 1. Persons / individuals 335, ,500 5, ,000 14, ,950 2, Companies 198, ,250-6, ,000-15, ,924 1, Value-added tax 267, ,700-4, ,600-6, , Secondary Tax on Companies / 19,250 19, ,400 2,150 21, Specific excise duties 31,080 32,530 1,450 32, , Fuel Levy 51,007 49,864-1,143 48,200-2,807 48, Custom / import duties 50,300 45,000-5,300 39,900-10,400 40, Other 1 39,974 39, ,900 3,926 44, Total tax revenue 993, ,610-10, ,000-14, ,283 7,283 Non-tax revenue 18,019 16,785-1,235 18, ,741-2,323 Less SACU / BLNS -51,738-51, , ,738 0 Total budget revenue 959, ,657-11, ,327-14, ,286 4,959 1:Includes - transfer duty, STT, estate duty, and other indirect taxes 7

8 Tax / GDP ratio Gross Tax revenue / GDP Ratio (National Government, excl. RAF & UIF) 27.0% 26.0% 25.0% 24.0% 1989/90, 24.7% 1998/99, 23.8% 2007/08, 26.4% 2014/15, 25.4% 23.0% 2009/10, 23.5% % 22.0% 21.0% 1993/94, 22.0% 2003/04, 22.3% 20.0% 19.0% 18.0% 17.0% 16.0% 15.0% YEAR 8

9 Direct and Indirect tax revenues Total Tax Revenue: Direct vs Indirect Taxes % 66.0% 64.0% 62.0% 60.0% 58.0% 56.0% 54.0% 52.0% 50.0% 48.0% 46.0% 44.0% 42.0% 40.0% 38.0% 36.0% 34.0% Direct Taxes Indirect Taxes 1993/94, 52.6% 2008/09, 62.7% 2014/15, 58.7% 2014/15, 41.3% YEAR 9

10 PIT, VAT and CIT accounts for more than 80% of total tax revenues Tax revenue by instrument as a % of National Budget Revenue 2007/ / / / / / / /15 Individuals 30.15% 32.05% 35.39% 33.74% 33.83% 35.01% 35.39% 37.15% VAT 26.88% 25.35% 25.52% 27.29% 25.81% 27.29% 27.14% 27.48% Companies 25.03% 27.16% 23.27% 19.76% 20.49% 20.21% 20.25% 19.53% Fuel levy 4.24% 4.09% 4.97% 5.12% 4.95% 5.13% 4.99% 5.10% Specific excise 3.25% 3.32% 3.67% 3.41% 3.43% 3.60% 3.32% 3.41% Customs duties 4.73% 3.74% 3.38% 3.96% 4.62% 4.95% 5.05% 4.27% STC / Dividends 3.68% 3.29% 2.67% 2.55% 2.97% 2.51% 1.98% 2.23% Sub Total 97.96% 98.99% 98.87% 95.83% 96.10% 98.70% 98.11% 99.16% Three (PIT, VAT, CIT) 82.06% 84.57% 84.18% 80.78% 80.13% 82.52% 82.78% 84.16% 10

11 PIT, VAT (prior to Sep 1991 = GST) & CIT as a % of GDP TAX / GDP ratio: Three main taxes 11.0% 10.0% 9.0% 8.0% 7.0% 1999/00, 10.3% 2003/04, 7.3% 2008/09, 6.9% 2014/15, 9.1% % 6.0% 5.0% 4.0% 2014/15, 6.7% 2014/15, 4.8% 3.0% 2.0% 1.0% 2000/01, 3.0% Individuals VAT Companies 0.0% YEAR 11

12 Selected tax rates ( ) Year: Budget GST / VAT Maximum PIT rate Tax Rates Company STC / WTD Fuel levy: Petrol % % % % c/l % % % , % , % , % , % , % ,5 98 3% ,5 98 0% , % , % , % , % , % , % , % , % , % % % % % 12

13 VAT revenue VAT Revenue: % of Tax Revenue (lhs) and of GDP (rhs) % 29.0% 28.0% 27.0% 26.0% 25.0% 24.0% 23.0% 22.0% 21.0% 20.0% 19.0% 18.0% 17.0% 16.0% 15.0% % of Tax Revenue % of GDP 7.5% 7.0% 6.5% 6.0% 5.5% 5.0% 4.5% 4.0% 3.5% 3.0% YEAR 13

14 VAT revenue performance = (VAT / GDP as a % ) / VAT Standard Rate (%) South Africa: (Sales Tax ) - VAT "Efficiency" Ratio /07, /15, /10,

15 History of the introduction of VAT in South Africa Value Added Tax was introduced on 30 September It is a destination VAT, invoice credit method, with full credits for capital goods. VAT is payable when invoice is issued payment basis for municipalities and sole traders with an annual turnover below R2.5 million per annum Value-Added Tax Committee (VATCOM) recommended a broad tax base with minimal exclusions When the VAT Act, No 89 of 1991, was promulgated on 12 June 1991 no provisions were made to zero-rate any goods or services. On 17 July 1991 the zero-rating of brown bread and maize meal were included. On 29 September 1991 eight additional basic food items were added to the zero-rated list. The zero rating of an additional nine basic food items was introduced with effect from 7 April The VAT rate was increased from 10 per cent to 14 per cent on the same day. 15

16 History of sales tax rates in South Africa General Sales Tax (GST) 3 July 1978: 4% 1 March 1982: 5% 1 September 1982: 6% 1 February 1984: 7% 1 July 1984: 10% 25 March 1985: 12% Value Added Tax 30 September 1991: 10% 7 April 1993: 14% 16

17 VAT history (2) Requests for a higher VAT rate on luxury goods were addressed by the extension of ad valorem excise duties on luxury goods to items such as: air conditioners, cell phones, video cameras, Jetskis, and domestic dishwashers. Motor vehicles (passenger cars) were later added to the list by way of a progressive ad valorem duty formula that excluded the cheapest vehicles from this impost. 17

18 VAT concessions Many analysts have demonstrated that in absolute monetary terms the middle and higher income earners benefit more from the zero-rating than the poor. However, public opinion is very strongly in favour of maintaining the zero rating of basic foodstuffs. Most countries exclude non-fee based financial services from the VAT base due to practical difficulties 18

19 Zero-rated and exempt supplies The following goods and services are zero-rated: Exports International transport services 19 basic food items Illuminating paraffin Goods which are subject to the fuel levy (petrol and diesel) Farming inputs Sales of going concerns, and Certain grants by government. Goods and services exempted from VAT are: Non-fee related financial services Educational services provided by an approved educational institution Residential rental accommodation, and Public road and rail transport. 19

20 Basic foodstuffs zero-rated in South Africa Brown bread. Maize meal. Samp. Mealie rice Dried mealies. Dried beans. Lentils. Pilchards/sardinella in tins. Milk powder. Dairy powder blend. Rice. Vegetables. Fruit. Vegetable oil. Milk. Cultured milk. Brown wheaten meal. Eggs. Edible legumes and pulses of leguminous plants. 20

21 Request for VAT concessions During the last few years, especially since the zero-rating of illuminating paraffin in 2001, the Minister of Finance has received several requests from the public, certain interest groups and by way of questions in Parliament to abolish VAT on the following goods and services: medicines; medical services; books; electricity; water; red meat; mageu (a maize based soft drink, largely consumed by the poor); security related expenses by private individuals; canned vegetables; and 450 gram household candles. The South African Candle Manufacturers argued that the zero-rating of illuminating paraffin has impacted negatively on the sales of household candles. And most recently toll fees 21

22 Cosatu Labour Federation Section 77(1)(b) notices, dated 17 August Cosatu requested the addition of the following to the list of VAT zero-rated goods and services: (i) fresh and frozen poultry, (ii) bread flour, (iii) white bread, (iv) white and brown sugar, (v) medicines purchased in public institutions, (vi) matches (vii) candles, (viii) coal, (ix) coal stoves, (x) soap, (xi) washing powders and (xii) pay-as-you-go cell phone costs. 2. COSATU also called for a higher VAT rate on luxury items 3. The old National Treasury argument that zero-rating benefits the more affluent households 4. What is of particular concern to COSATU is the suggestion by the Davis Tax Committee that if tax rates have to be increased, VAT should be a candidate for such a consideration. 5. We demand that Treasury should reject the proposal to increase VAT and the consideration relating to no additional items for VAT zero-rating. 6. Workers cannot afford a further burden of tax increase after an increase of PIT in the 2015 Budget 22

23 Tax and regressivity (1) The debate on the effectiveness of attempts to help the needy via the zero rating persists. Many analysts have demonstrated that in absolute monetary terms the middle and higher income earners benefit more from the zero-rating than the poor. The zero-rating of illuminating paraffin (IP) in South Africa is probably a case in point of well intended but misguided zerorating. It would appear that most of the benefits of the VAT zero-rating of IP was captured by retailers in the form of higher profit margins. Providing relief in the form of reduced rates, zero-rating (or exemption) for merit goods might even worsen the regressivity of a VAT system because these goods (books, medical services, etc.) are mostly bought (in the private sector) by individuals in the middle and higher income groups. 23

24 VAT and regressivity (2) "In the final analysis it is not whether the VAT itself is regressive or not, but whether the entire tax and expenditure system is achieving the pattern of household income net of taxes and gross of transfers and government expenditures that society desires. The case for VAT does not fall on its regressiveness. The case for VAT is that it is an efficient way of collecting a large and buoyant revenue for government; other parts of the budget should take care of progressiveness, and the VAT should be kept as simple and efficient as it is intended to be - for that is its justification" (Tait: 1988). "The justification for VAT is that it is a neutral, efficient, buoyant, revenueraising instrument. It is not designed to correct income or wealth inequalities. Other aspects of the tax system, such as the progressive income tax and more specifically the expenditure side of the government budget should take care of progressiveness, thus leaving the VAT system as simple and effective as possible" (Adams: 1994). 24

25 Multiple VAT rates Most VAT multiple rates are as a result of political concessions rather than sound socio-economic and tax administrative considerations. The Margo Commission (1987) recommended a single rate VAT structure and inter alia quoted the Irish Commission in this regard. The Irish Commission on Taxation concluded in its Third Report of 1984, that an attempt to make VAT progressive by using a multi-rate system is not recommended. Instead, it recommended a single-rate broad-based system on all purchases. The Commission stated: "We are satisfied that to charge different rates of indirect tax on different goods and services is a most wasteful and ineffective way of trying to redistribute income. That task is best achieved by well-designed public expenditure programmes, supplemented at the top of the range of income and wealth by a progressive expenditure (income) tax. Measures on the indirect tax side complicate the system, give increased scope for evasion and accomplish little in the way of redistribution." 25

26 Administration & Compliance costs Differential VAT rates (including concessions in the form of zerorating, reduced rates and /or exemptions) results in increased administration and compliances costs. There is a (+) correlation between the compliance costs of VAT and the number VAT rates. (Compliance of VAT in Sweden, Report 2006:3B) Global VAT experience has shown that, regardless of the effort which goes into defining the scope of a concession, borderline cases will subsequently result in uncertainties for both the Revenue Authority, as well as evasion opportunities for unscrupulous vendors (p.167) 26

27 VAT in South Africa: What Kind of Rate Structure? Cnossen, VAT Monitor, 2004 providing relief to the poor through exemptions and VAT zero-rating is likely to be both unsound tax policy and ineffective social policy the disadvantages of multiple VAT rates outweigh the possible redistributive gains available from this option VAT impact studies in other countries also confirm specific conclusions of the Katz Commission. In Ireland, for example, it was found that the poor spend relatively more of their income on food than the rich, (however) in absolute amounts the rich spend twice as much (on food) as the poor. Consequently, Ireland s zero-rating of food gives twice as much tax relief to high-income groups than to low-income groups - an odd way of alleviating the plight of the poor. 27

28 Taxing Consumption, World Bank, PREM notes June Richard Bird.. The best sales tax (VAT) with respect to both efficiency and administration is undoubtedly one with a single uniform rate applied to all taxable transactions... Higher rates on luxury goods are an ineffective means of increasing the progessivity of the fiscal system, and, most importantly, lower tax rates on necessities are generally poorly targeted and ineffective. The rich may spend relatively less of their income on basic food, but they are likely to spend absolutely more and hence receive more benefit from such concessions. 28

29 Consumption Taxes: the Way of the Future? OECD, Policy Brief, October 2007 many countries apply a reduced rate of VAT to certain necessities in order to reduce the tax burden on the poor. However, this is a relatively ineffective way of dealing with the problem as the rich typically consume more of the necessities than the poor. An argument can also be made in the case of using VAT to reduce employers social security contributions, thus reducing the cost of exporting and importing-competing firms. 29

30 Mirrlees Review of the UK tax system, Institute for Fiscal Studies, Nov 2010 Value added tax (VAT) is an important and, on the whole, well-designed tax. But in the UK, zero rates are applied to an unusually wide range of goods and services. There may be convincing arguments to justify a few of these departures from uniformity, but not most. We favour a broadening of the VAT base in the UK, applying the standard rate to a wider range of goods. The central component of both reform packages we look at is a broadening of the VAT base such that goods and services now subject to zero and reduced rates of VAT principally food, passenger transport, books and other reading matter, prescriptions drugs, children s clothing, and domestic fuel and power would be taxed at the standard rate after the reform. Why should the tax system favour people who like reading magazines more than listening to music, or who buy their children more expensive clothes and less expensive toys than other? The UK increased the standard VAT rate from 17.5% to 20% 30

31 Study on the VAT treatment of merit goods in South Africa, 2007 The Terms of Reference indicated that National Treasury required a review of current and proposed VAT exceptions and guidance on how to treat future requests for preferential treatment of so-called merit goods and services. The key objectives of the study are to: Develop a sound tax policy position with regard to the VAT treatment of merit goods and services in general; Review whether existing merit goods or services treated as exceptions are in line with sound tax policy principles; Develop a sound tax policy position with regards to the VAT treatment of books, medicines, medical services and municipal services (electricity and water); Analyse the appropriateness and effectiveness of the existing and proposed VAT relief measures and the distributional implications of the suggested merit goods or services; and Ensure protection of the tax base but at the same time ensuring that the VAT system is equitable acceptable, and administratively not too complex.

32 Definition of merit goods and services Arguments used to justify merit status include: The good or service is in the public interest; The product is essential; Poorer households should not have to pay VAT on these products; Targeted budgetary assistance is not capable of ensuring that the product can be supplied to everyone; The product is of a cultural nature; The product is of an educational nature and taxation amounts to a tax on knowledge; or The product is hard to tax. In practice, merit goods have come to include all products for which exceptions have been adopted or are being considered.

33 International treatment of merit goods The majority of countries studied afford some form of preferential VAT treatment to the existing and/or proposed merit goods and services in South Africa. Preferential treatment can take the form of zero-rating, exemption or a lower rate. The VAT rates in many other countries are higher than in South Africa. The scope of VAT relief is often limited, e.g. to services provide by state-owned or non-profit organisations. Educational services are generally regarded as meriting preferential treatment in all regions of the world. Preferential treatment is usually in the form of an exemption. Lower rates tend to be applied to reading matter more frequently than exemption or zero-rating. Although many countries provide relief for municipal services (especially electricity and water) there are no clear trends as to the form that this relief takes.

34 Analysis of household spending Existing zero-ratings do make up a higher proportion of the consumption spending of lower income households. However, when these expenditures are considered in the context of total household consumption spending, they tend to account for a much smaller portion of total spending. As a result, the VAT savings (in absolute Rands) enjoyed by lower income groups are much lower than those enjoyed by higher income groups. The only products where current favourable VAT treatment leads to some reduction in regressivity are mealie meal and bread flour.

35 Estimated share of VAT paid in 2006 on other merit goods Product Expenditure Group Very Low Low Middle High Very High Total Products currently standard rated Water 2.8% 4.3% 12.7% 22.4% 57.8% 100.0% Electricity 1.1% 2.5% 10.8% 25.3% 60.3% 100.0% Medicine with prescription 3.5% 5.9% 18.9% 28.6% 43.1% 100.0% Health services not covered by medical aid 1.8% 4.5% 14.4% 22.0% 57.4% 100.0% Medicines without prescription 3.3% 8.3% 23.1% 31.2% 34.2% 100.0% Flat fee medical services 3.6% 1.8% 3.6% 6.9% 84.1% 100.0% Doctors, dentists etc 1.5% 2.5% 8.8% 15.6% 71.5% 100.0% Medicines with prescription not covered by medical aid 0.0% 0.1% 1.2% 9.6% 89.1% 100.0% Non medical aid medicines without prescription 0.2% 0.2% 1.4% 8.3% 89.9% 100.0% Textbooks 0.1% 1.0% 8.8% 25.3% 64.8% 100.0% Newspapers 1.7% 3.6% 11.7% 24.6% 58.3% 100.0% Magazines 9.0% 8.1% 23.7% 32.1% 27.1% 100.0% Books 6.3% 8.6% 19.9% 24.5% 40.7% 100.0%

36 The poorest 40% of households vs. the top 10% of households, 2010/11 IES The consumption of food and non-alcoholic beverages by the bottom 40% of households accounts for between 32% and 35% of their total spending The bottom 40% of households accounts for only 21.3% of the total spend on food and non-alcoholic beverages The consumption of food and non-alcoholic beverages by the top 10% of households accounts for only 5.6% of their total spending The top 10% of households accounts for 20.4% of the total spend on food and non-alcoholic beverages 36

37 Weighted equity gain ratio (WEGR) for selected food items Ada Jansen and Estian Calitz, July 2015 Food items WEGR Currently zero-rated 1 Maize meal Yes 2 Brown bread Yes 3 Dried beans 97.9 Yes 4 Poultry 80.4 No 5 White sugar 63.1 No 6 Bread flour 62.5 No 7 Samp 58.3 Yes 8 Cabbage 54.3 Yes 9 Rice 52.7 Yes 10 Edible oils 51.8 Yes 11 Sour milk 47.1 Yes 12 Cake flour 41.0 No 13 Potatoes 36.7 Yes 14 Canned pilchards 22.5 Yes 37

38 Proposed merit goods and services Rejection of requests for merit good status in the case of : Books because - Higher income households will benefit disproportionally; consumers are likely to receive a relatively small portion of any benefit arising from zero-rating the cost of books has little influence on literacy levels in South Africa; additional funding for books in the education system would have a bigger impact on literacy levels; and Medicines because - Higher income households will benefit disproportionally even though consumers might enjoy a significant portion of any VAT savings; the positive price elasticity of demand suggests that elimination of VAT from medicines would not have the desired effect of increasing consumption of medicines; and Very Low and Low expenditure groups are very reliant on the public health sector for access to medicines.

39 Table Average % household consumption expenditure by main expenditure group and expenditure deciles (2010/11 IES) Expenditure deciles Lower Upper Total Lower Upper Food and non-alcoholic beverages 35.0% 35.2% 33.9% 32.1% 29.3% 26.0% 21.3% 15.3% 10.3% 5.6% 12.8% Alcoholic beverages and tobacco 3.3% 2.8% 2.4% 1.7% 2.0% 1.7% 1.9% 1.3% 1.1% 0.6% 1.1% Clothing and footwear 7.8% 8.6% 8.6% 8.5% 8.1% 7.8% 7.4% 5.6% 4.2% 2.6% 4.5% Housing, water, electricity, gas and other fuels 26.0% 22.5% 22.3% 22.1% 23.2% 25.4% 27.2% 32.4% 33.5% 35.2% 32.0% Furnishings, household equipment and routine maintenance of the dwelling 4.5% 5.3% 5.8% 5.9% 5.7% 5.7% 5.6% 4.7% 4.7% 5.1% 5.1% Health 1.7% 1.6% 1.5% 1.4% 1.3% 1.3% 1.4% 1.3% 1.5% 1.4% 1.4% Transport 7.0% 8.6% 9.4% 11.0% 12.2% 12.5% 14.6% 14.7% 15.1% 21.1% 17.1% Communication 3.9% 3.6% 3.5% 3.4% 3.1% 3.2% 3.1% 3.0% 3.1% 2.5% 2.8% Recreation and culture 1.2% 1.5% 1.8% 1.8% 2.1% 2.2% 2.3% 2.8% 3.5% 3.5% 3.0% Education 0.4% 0.4% 0.5% 0.8% 1.0% 1.9% 2.0% 2.5% 3.3% 3.2% 2.7% Restaurants and hotels 2.3% 2.1% 2.0% 2.4% 2.7% 2.4% 2.4% 2.3% 2.7% 2.4% 2.4% Miscellaneous goods and services 6.8% 7.7% 8.2% 8.7% 9.1% 9.9% 10.6% 13.8% 17.0% 16.8% 14.7% Other unclassified expenses 0.1% 0.1% 0.1% 0.1% 0.2% 0.1% 0.1% 0.1% 0.1% 0.2% 0.1% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Total 39

40 Average % household consumption expenditure by expenditure deciles (2010/11 IES) - (1) Food and non-alcoholic beverages Housing, water, electricity, gas and other fuels 40.0% 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% 40.0% 30.0% 20.0% 10.0% 0.0% Lower Upper Transport 20.0% Miscellaneous goods and services 25.0% 20.0% 15.0% 15.0% 10.0% 10.0% 5.0% 5.0% 0.0% Lower Upper 0.0% Lower Upper 40

41 Average % household consumption expenditure by expenditure deciles (2010/11 IES) - (2) 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% Clothing and footwear Lower Upper 8.0% 6.0% 4.0% 2.0% 0.0% Furnishings, household equipment and routine maintenance of the dwelling Lower Upper 5.0% 4.0% 3.0% 2.0% 1.0% Communication 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% Recreation and culture 0.0% Lower Upper 41

42 Average % household consumption expenditure by expenditure deciles (2010/11 IES) - (3) Education Restaurants and hotels 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% Lower Upper 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% Lower Upper Alcoholic beverages and tobacco Health 3.5% 3.0% 2.5% 2.0% 1.5% 1.8% 1.7% 1.6% 1.5% 1.4% 1.3% 1.0% 0.5% 0.0% Lower Upper 1.2% 1.1% 1.0% Lower Upper 42

43 Miscellaneous goods & services Health insurance Dwelling insurance Other insurance Transport insurance Other services Financial services n.e.c Other appliances, articles and products for personal care Jewellery, clocks and watches Miscellaneous goods and services Upper Total Health insurance 0.1% 0.2% 0.5% 0.5% 1.1% 2.0% 4.7% 7.4% 7.7% 5.7% Dwelling insurance 0.0% 0.0% 0.0% 0.1% 0.1% 0.2% 0.8% 1.9% 3.2% 2.0% Transport insurance 0.0% 0.0% 0.0% 0.0% 0.0% 0.1% 0.5% 1.3% 1.2% 0.9% Other insurance 2.7% 2.5% 2.4% 2.3% 2.4% 2.1% 2.1% 1.4% 0.9% 1.4% Financial services n.e.c 1.3% 1.3% 1.2% 1.3% 1.3% 1.4% 1.4% 1.5% 1.2% 1.3% Other services 1.0% 1.4% 1.7% 2.0% 2.1% 2.2% 2.0% 1.5% 1.2% 1.5% Other appliances, articles and products for personal care 1.9% 2.0% 2.4% 2.1% 2.0% 1.9% 1.6% 1.1% 0.7% 1.2% 43

44 Table % share of household consumption expenditure by main expenditure group and expenditure deciles (2010/11 IES) Main expenditure group Expenditure deciles Lower Upper TOTAL % per year Food and non-alcoholic beverages 2.7% 4.8% 6.2% 7.6% 8.9% 10.3% 11.6% 12.8% 14.8% 20.4% 100% Alcoholic beverages and tobacco 3.0% 4.5% 5.1% 4.8% 7.0% 7.8% 12.3% 12.8% 18.4% 24.3% 100% Clothing and footwear 1.7% 3.3% 4.5% 5.7% 7.0% 8.9% 11.5% 13.4% 17.0% 27.0% 100% Housing, water, electricity, gas and other fuels 0.8% 1.2% 1.6% 2.1% 2.8% 4.0% 5.9% 10.8% 19.3% 51.4% 100% Furnishings, household equipment and routine maintenance of the dwelling 0.9% 1.8% 2.7% 3.5% 4.3% 5.7% 7.6% 9.9% 16.9% 46.8% 100% Health 1.2% 1.9% 2.4% 3.0% 3.6% 4.7% 6.8% 10.0% 19.0% 47.4% 100% Transport 0.4% 0.9% 1.3% 2.0% 2.8% 3.7% 5.9% 9.2% 16.2% 57.7% 100% Communication 1.4% 2.2% 2.9% 3.6% 4.3% 5.7% 7.7% 11.5% 20.0% 40.7% 100% Recreation and culture 0.4% 0.9% 1.4% 1.8% 2.6% 3.6% 5.2% 9.8% 20.9% 53.3% 100% Education 0.2% 0.3% 0.5% 0.9% 1.5% 3.6% 5.2% 10.0% 22.7% 55.2% 100% Restaurants and hotels 0.9% 1.5% 1.9% 3.0% 4.3% 5.0% 7.0% 10.0% 20.3% 46.0% 100% Miscellaneous goods and services 0.5% 0.9% 1.3% 1.8% 2.4% 3.4% 5.0% 10.1% 21.2% 53.4% 100% Other unclassified expenses 0.7% 1.3% 2.3% 2.2% 4.6% 4.7% 6.5% 10.5% 16.0% 51.2% 100% Total % 1.0% 1.7% 2.3% 3.0% 3.9% 5.1% 7.0% 10.7% 18.4% 46.8% 100% 1.0% 2.7% 5.1% 8.1% 12.0% 17.1% 24.1% 34.8% 53.2% 100.0% Cummulative % Total 44

45 Table 2.40 Cumulative % share of household consumption expenditure by main expenditure group and expenditure deciles (2010/11 IES) R' TOTAL Table 2.40 (%) - TOTAL household consumption expenditure by main expenditure group and expenditure deciles Expenditure deciles Lower Main expenditure group TOTAL- Cumulative % Food and non-alcoholic beverages 2.7% 7.5% 13.7% 21.3% 30.2% 40.5% 52.1% 64.9% 79.6% 20.4% 100% Alcoholic beverages and tobacco 3.0% 7.5% 12.6% 17.4% 24.3% 32.2% 44.5% 57.2% 75.7% 24.3% 100% Clothing and footwear 1.7% 5.0% 9.5% 15.2% 22.3% 31.1% 42.6% 56.0% 73.0% 27.0% 100% Housing, water, electricity, gas and other fuels 0.8% 2.0% 3.7% 5.7% 8.6% 12.6% 18.5% 29.3% 48.6% 51.4% 100% Furnishings, household equipment and routine maintenance of the dwelling 0.9% 2.7% 5.3% 8.8% 13.1% 18.8% 26.4% 36.3% 53.2% 46.8% 100% Health 1.2% 3.1% 5.5% 8.6% 12.2% 16.8% 23.6% 33.6% 52.6% 47.4% 100% Transport 0.4% 1.3% 2.6% 4.5% 7.3% 11.0% 16.9% 26.1% 42.3% 57.7% 100% Communication 1.4% 3.6% 6.4% 10.1% 14.4% 20.1% 27.8% 39.3% 59.3% 40.7% 100% Recreation and culture 0.4% 1.3% 2.7% 4.5% 7.2% 10.8% 16.0% 25.8% 46.7% 53.3% 100% Education 0.2% 0.4% 0.9% 1.8% 3.3% 6.9% 12.0% 22.1% 44.8% 55.2% 100% Restaurants and hotels 0.9% 2.4% 4.4% 7.4% 11.7% 16.7% 23.7% 33.7% 54.0% 46.0% 100% Miscellaneous goods and services 0.5% 1.4% 2.7% 4.5% 6.9% 10.3% 15.3% 25.4% 46.6% 53.4% 100% Other unclassified expenses 0.7% 2.0% 4.3% 6.5% 11.1% 15.8% 22.3% 32.8% 48.8% 51.2% 100% Total: Cumulative % 1.0% 2.7% 5.1% 8.1% 12.0% 17.1% 24.1% 34.8% 53.2% 46.8% 100% Source: Statistics South Africa, Income and Expenditure Survey, 2010/11 Upper only Total 45

46 Ad Valorem excise duties luxury goods Tariff Item Article description Tax rate Perfumes & toilet waters 7% Lip make-up preparations 5% Eye make-up preparations 5% Manicure & pedicure preparations 5% Powders 5% Fireworks 7% Fur apparel 7% Air conditioning machines buildings not exceeding 8.8 KW 7% Telephones - cordless 7% Cellular phones 7% Loudspeakers 7% Electric amplifiers 7% Sound recording or reproducing apparatus 7% Video recording and reproducing apparatus 7% Cameras: Television, digital and video 7% Reception apparatus for radio-broadcasting 7% Radio-broadcast receivers used in motor vehicles 7% Monitors 7% Televisions, decoders 7% Projectors 7% Motor vehicles: passenger cars & goods - LVCs not exceeding 5 ton Formula Golf carts 7% Motorcycles 7% Water scooters 7% Revolvers, pistols, shot guns, etc. 7% Casino games - games of skill 7% Video games 7% Golf balls 7% 46

47 Ad Valorem excise duties luxury goods R Million 2005/ / / / / / / / / /15 Ad valorem excise duties : Domestic Ad valorem excise duties : Imports Total % 2005/062006/072007/082008/092009/102010/112011/122012/132013/ /15 Ad valorem excise duties : Domestic 35% 26% 28% 26% 28% 28% 26% 26% 23% 28% Ad valorem excise duties : Imports 65% 74% 72% 74% 72% 72% 74% 74% 77% 72% Total 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 47

48 Ad Valorem excise duties luxury goods imports Description - R million 2005/ / / / / / / / / /15 1 Essential oils and resinoids Explosives pyrotechnic products Machinery and Mechanical Appliances Electrical Machinery and Equipment cell phones, etc Vehicles and accessories Ships, boats and floating structures Photographic, cinematographic, and medical instruments Arms and ammunition Toys, games and sports equipment Total

49 Ad Valorem excise duties luxury goods imports Description - % Share 2005/ / / / / / / / / /15 1 Essential oils and resinoids 2% 2% 2% 3% 3% 2% 2% 2% 2% 2% 2 Explosives pyrotechnic products 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 5 6 Machinery and Mechanical Appliances Electrical Machinery and Equipment - cell phones 2% 2% 2% 1% 2% 1% 1% 1% 1% 1% 33% 32% 29% 38% 35% 34% 29% 25% 26% 26% 7 Vehicles and accessories 60% 62% 66% 56% 59% 61% 66% 70% 69% 70% 8 9 Ships, boats and floating structures Photographic, cinematographic, and medical instruments 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 1% 1% 0% 0% 0% 0% 0% 0% 0% 0% 10 Arms and ammunition 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% Toys, games and sports 11 equipment 2% 2% 1% 1% 1% 1% 1% 1% 1% 1% Total 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 49

50 Summary A VAT system with the smallest number of exemptions, zero-ratings and lower rates is desirable. Efficiency and simplicity considerations should dominate and equity and other objectives should be pursued through the expenditure side of fiscal policy. In principle, the adoption, or perpetuation, of VAT concessions aimed at addressing regressivity should not occur unless ways can be found to target such benefits only to lower income households. The VAT has been seen as a key instrument for securing macroeconomic stability and growth by placing domestic revenue mobilization on a sounder basis.

51 Obrigado Merci: French Asante: Swahili Ngiyabonga: IsiZulu Enkosi: IsiXhosa Thank you: English Dankie: Afrikaans Ngiyathokoza: IsiNdebele Ke a leboha: Sesotho Ke a leboga: Northern Sotho: Ke a leboga / Re a leboga: Setswana Siyabonga: SiSwati Inkomu: Xitsonga Ndo livhuwa / Ro livhuwa: Tshivenda 51

52 VAT rates in selected countries 30% VAT rates in selected countries 25% 20% 15% 10% 5% 0% Andorra Jersey Taiwan India Malaysia Maldives Panama Singapore Bahamas Japan Liechtenstein Switzerland Iran Australia Indonesia Lebanon Mongolia Paraguay South Korea Thailand Vietnam Ecuador Guatemala Kazakhstan Philippines Sri Lanka Venezuela Bolivia El Salvador Nepal South Africa Bangladesh Ethiopia Fiji Ghana Mauritius Namibia New Zealand The Gambia Trinidad and Tobago Colombia Guyana Jordan Kosovo Mexico Palestine Bosnia and Herzegovina Pakistan People's Republic of China Saint Kitts and Nevis Barbados Azerbaijan Dominican Republic Georgia Macedonia Peru Russia Rwanda Tunisia Turkey Chile Montenegro Monaco Albania Armenia Belarus Morocco Republic of Moldova Serbia Ukraine Uzbekistan Argentina Uruguay Faroe Islands Norway Iceland 52

53 Gross Tax Revenue as a % of GDP: SA & other African countries: 2013/14? 53

54 Gross Tax Revenue as a % of GDP: SA & OECD countries

55 Top marginal personal income tax rate is on the upper end compared to African countries 70 Top marginal personal income tax rate: African countries Libya Sudan Mauritius Seychelles Angola Guinea-Bissau Madagascar São Tomé and Príncipe Nigeria Botswana Egypt Ghana Liberia Burkina Faso Comoros Djibouti Eritrea Kenya Malawi Mauritania Rwanda Sierra Leone Tanzania Mozambique Swaziland Gambia Algeria Burundi Cameroon Cape Verde Equatorial Guinea Ethiopia Gabon Lesotho Niger Tunisia Namibia Morocco Uganda Guinea Mali Somalia South Sudan Senegal South Africa Ivory Coast Congo, Republic of Benin Congo, Republic of Togo Zimbabwe Central African Republic Chad 55

56 In the middle when compared to OECD countries Top marginal personal income tax rate: OECD countries Czech Republic Hungary Estonia Slovak Republic Canada Finland Iceland Poland New Zealand Mexico Korea Turkey United States Chile Switzerland Japan South Africa Ireland Greece Italy Luxembourg Australia France United Kingdom Germany Norway Israel Portugal Austria Belgium Slovenia Netherlands Spain Denmark Sweden 56

57 CIT: Headline tax rates SA vs. OECD countries, 2014 (note effective tax rates are lower) 40 CIT Headline Tax Rates - SA vs. OECD countries Ireland Canada Germany Slovenia Poland Czech Republic Hungary Finland Turkey Chile Iceland Luxembourg Estonia United Kingdom Sweden Slovak Republic Portugal Switzerland Denmark Netherlands Austria Japan Greece Israel Norway Italy South Africa New Zealand Mexico Spain Australia Belgium France Korea United States 57

58 Changes in CIT rates across OECD & South Africa

59 CIT: Headline tax rates SA vs. other African countries, 2014 (note effective tax rates are lower) 60 CIT Headline Tax Rates : SA vs. other African countries Mauritius Libya Madagascar Zimbabwe Vietnam Botswana Guinea-Bissau Algeria Egypt São Tomé and Príncipe Ghana Cape Verde Djibouti Liberia Mauritania Lesotho Togo Burkina Faso Swaziland Ivory Coast South Sudan South Africa Nigeria Central African Republic Sierra Leone Gabon Ethiopia Uganda Rwanda Tanzania Niger Benin Malawi Senegal Kenya Tunisia Somalia Eritrea Gambia Mozambique Seychelles Congo, Republic of Congo, Republic of Namibia Equatorial Guinea Angola Sudan Burundi Mali Guinea Cameroon Chad Comoros 59

60 CIT as a % of GDP OECD, Taxes on corporate income as percentage of GDP,

61 CIT Revenue and the CIT headline rate in South Africa 60.0% Headline CIT rate (rhs) & CIT revenue as a % of GDP (lhs) 8.0% 50.0% 2008/09, 6.9% 7.0% 6.0% 40.0% 5.0% 30.0% 4.0% 20.0% 1999/00, 2.4% 2008/09, 28.0% 3.0% 2.0% 10.0% CIT Rate CIT Rev. % GDP 1.0% 0.0% 1983/ / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / /15 0.0% 61

62 CIT Revenue (provisional) by Sector Provisional and Assessed CIT Receipts (%) 2001/ / / / / / /14* Financial intermediation, insurance, realestate and business services 28% 31% 33% 36% 38% 37% 36% Manufacturing 30% 31% 31% 24% 21% 20% 20% Wholesale and retail trade, catering and accommodation 8% 7% 10% 12% 14% 18% 15% Transport, storage and communications 8% 6% 6% 7% 9% 8% 10% Mining and quarrying 18% 17% 11% 13% 7% 8% 7% Community, social and personal services 4% 3% 4% 3% 4% 3% 4% Agriculture, forestry and fishing 1% 0% 0% 1% 2% 2% 2% Construction 1% 1% 2% 3% 4% 2% 2% Electricity, gas and water 1% 1% 1% 1% 1% 1% 2% OTHER 1% 2% 2% 0% 0% 1% 1% Total 100% 99% 100% 100% 100% 100% 100% 62

63 VAT standard rate: Below & Above 14% (SA & Mauritania = 14%) Below Above TOTAL Africa 13% 81% 94% South America 33% 67% 100% Central America 43% 57% 100% Asia 80% 20% 100% Western Europe 0% 100% 100% Eastern Europe 13% 88% 100% TOTAL 28% 72% 100% 63