The proposed sugar tax is proving to be unpopular and contentious, and is perhaps diverting attention away from more substantive tax problems.
The announcement of the sugar tax in the February 2016 budget speech was welcomed by Public Health and the anti-sugar lobbyists as being in the interests of overall public health, while at the same time filling large holes in the public coffers. Problem fixed, or not?
That the poor are resorting to sugary drinks because they are cheap, obviously points to a much wider problem of poverty and the lack of healthy food, which will not be solved by raising the cost of those sugary drinks. Not that the proposed tax would be simple to administer. One would have expected the Department of Health to come up with a more comprehensive plan of improving the state of health, and for National Treasury to have come up with a more cost effective means of raising revenue. There is also the question of whether it makes economic sense to needlessly burden the tax system with an added responsibility of national health.
National Treasury published the sugar tax Policy Paper for comment a year ago. Since then, three parliamentary hearings have taken place, and the debate will continue in August. Much time and energy have been wasted on developing macro-economic models to calculate the impact of the proposed tax, and in listening to the arguments put forward by pundits in favour and against. The elusive goal of collecting more taxes and solving the apparent sugar-caused obesity problem is moving further out of reach.
Perhaps, there should a greater focus on the tax laws that we already have? Are they cost effective? Are they being properly administered? How effective is the Sars audit team? Have tax incentives been granted to the appropriate sectors of the economy, and have they led to an increase in productive capacity, employment, exports, and additional revenue?
The Organisation for Economic Cooperation and Development (OECD) recently completed the Base erosion and profit shifting (BEPS) project, in which National Treasury and Sars participated. BEPS is a catch all term for those schemes that exploit the differences between domestic laws, and enable profits to be shifted to low or no-tax locations.
The project consisted of the most prevalent tax avoidance strategies used in international tax planning, and resulted in recommendations of best practice guidelines to challenge these tactics.
There are still many challenges, not only in aligning our current legislation to best practice, but in introducing new legislation to bridge the major differences in our law that can be arbitraged for tax avoidance purposes. Apart from Exchange of Information (EOI) initiatives such as Country by Country (CbC) reporting and the Common Reporting Standard (CRS), there has been no action in regard to the BEPS Reports.
Two years ago, on 8 October 8 2015, Commissioner Tom Moyane gave a talk to a conference on illicit financial flows in Pretoria. He proposed the following “… there is an urgent need to implement the BEPS action items. An essential part of this will be increasing capacity and building capability to tackle complex arrangements as well as improving reporting and information systems. Another area of focus should include the transfer pricing of intangibles, treaty abuse and claiming of excessive interest deductions, which is often abused by multinationals.” At another conference on illicit financial flows in July 2016, the then Minister of Finance, Pravin Gordhan, referred to “Tax crimes, money laundering and illicit flows”, and that it undermines initiatives to “promote inclusive growth, reduce inequality and improve the standard of living of the poor and lower middle classes”. No doubt at the next conference on illicit financial flows, similar speeches will be made about what needs to be done.
Sars and National Treasury have suffered an exodus of seasoned professional staff recently, and it is unlikely that these skills can be replaced. This must negatively impact the effective collection of taxes, and reduce what is lost to the fisc though tax avoidance and evasion. It is time to take stock of what they can achieve with what they have.
I therefore have a cynical view of the proposed sugar tax. It obfuscates what has not and what cannot be done.
Barbara Curson, CA(SA) and Tax Specialist, dedicated 20 years to unravelling tax avoidance structures at SARS.