(3 Minutes Read)
The proliferation of tax incentives in South Africa has again come under fire because of their destructive impact on the tax base and their economic consequences.
Prominent players in the tax industry, including South African Revenue Service Commissioner Edward Kieswetter, have highlighted the distortive effect on resource allocation and the potential for abuse that incentives create.
Michael Katz, chair of ENSafrica, told delegates at the annual Tax Indaba in Cape Town that his one plea is for a massive re-evaluation and elimination of tax incentives that have reduced the tax base significantly. The matter was also interrogated during the 2020 Tax Indaba, where figures from the National Treasury were quoted – including that 4.5% of the R1.3 trillion tax revenue back then was foregone in the form of incentives.
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Taxpayers initially received a full tax deduction on investments in VCCs. Shortly before the incentive expired, the deduction was capped at R2.5 million for individuals and trusts and R5 million for companies per tax year. Some investors used the VCCs to fund low-risk projects instead of investing in sectors that could drive economic growth and create jobs.
