Quote Originally Posted by wynn View Post
I personally believe that income tax is the problem!

The so called 5 million who contribute to the fiscus only contribute a small portion by way of personal tax.

Company tax and duties is the main contributor.

Now if some clever mathamatician did the calculation as to how much VAT should be increased by to take up the personal tax shortfall we would all pay tax equally according to our spendings, not our earnings, I would guess 20%?
Interesting concept. I would take it one step further though. Transaction tax. The problem with VAT is that it still requires admin and allows people to fiddle the calculations.

With a transaction tax, every single transaction passing through a bank account is taxed at a fixed rate at say 2%. So when you want to buy a R100 item at Pick n Pay on your card, you will in fact pay R100 + R2 (in a very similar way to the current bank charge system). Pick n Pay will receive R100 in their account but also be taxed R2 for receiving it. So effectively You pay R102, Pick n Pay receives R98 and SARS get R4.

This happens for every single transaction going through the bank system. It replaces Income tax, CGT, VAT and possibly even UIF, SDL, petrol tax and others.

- No more complicated tax returns. The beauty of this system is its simplicity. It all happens automatically behind the scenes.
- This makes avoiding tax very difficult and often not worth the effort.
- All collecting is done by the banks so SARS can monitor a dozen institutions instead of 5 million plus individuals.
- A fairer system in that taxes are in line with your use of the general economy. The more you spend / receive the more you are taxed.
- There would be no more need for company financials or accountants. You have the option of still doing so from a business efficiency point of view, but their is no tax need to do so.
- Loss making companies still contribute and so the profitable ones don't have to bear the full burden.
- No more panic because your cash flow does not allow for that VAT return payment or provisional payment, as all taxes are deducted on cash flow.
- Even criminals now pay more tax as they spend their proceeds.
- Certain industries can still be taxed more by requiring them to have licences which will make tax admin an issue only for them. Eg Mining, Luxury goods, Alcohol, Tobacco, etc.
- Instead of "zero rating" certain goods, rather provide rebates back to those industries. This keeps the system as simple as possible for the bulk of the public, with only a few entities having to keep detailed tax records.
- A larger tax base results as almost everyone is contributing.
- Cash is the obvious means for avoidance and this can be discouraged by making it expensive to withdraw, limiting amounts people may keep, limiting the amount of cash that can be received, limiting cash in the system and changing the notes every few years to force deposits, etc.

My only concern is the 2% assumption made in the beginning. For the system to work, it needs to be a low amount so that people find it reasonably insignificant per transaction which removes the incentive for avoidance. I'm not sure what the figure would be to get the same revenue for SARs as through their existing system, because I couldn't find what the annual total of transactions through our banks was in a year. So I had to use my personal experience and a few JSE listed companies to come to my figure.

Apparently Brazil tried such a system a while back, but info is scarce. It seems to have been reasonably successful, but I can't find any good reasons for them stopping it.

Wouldn't it be nice to have a hassle free tax system?