New tax looms for business

By Time of article published Sep 1, 2011

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Businesses could be hit with another tax if the country’s metros get their way.

Five metros were spearheading a proposal for a tax on business to help municipalities raise up to R19 billion in additional funds, eThekwini treasurer Krish Kumar said yesterday.

He was addressing a commission on sound municipal finance and budget planning at the national conference of the SA Local Government Association (Salga) in Durban.

The five metros – eThekwini, Johannesburg, Nelson Mandela Bay, Ekurhuleni and Cape Town – have already begun discussions with the National Treasury.

A formal application will be submitted for discussion by the Local Government Budget Forum, a body chaired by the minister of finance, which includes the MECs for finance and Salga representatives.

Buffalo City, which became a metro after the local government elections in May, will also join the original five. Kumar said there had been initial discussions with Business Unity SA, the umbrella business association, as well as regional chambers of commerce.

Delegates to the Salga conference are also expected to vote today on a resolution on the tax proposal.

If approved by the minister, the local tax on business will be the only tax instrument – besides property tax – municipalities have after the scrapping of regional service council levies in 2006.

Taxes on property, municipalities complain, are heavily constrained by the Co-operative Governance and Traditional Affairs Department’s insistence on ensuring consistency nationally.

The tax, which metros were proposing be collected by the SA Revenue Service, could either be a tax on a combination of depreciation and remuneration of employees or be based on turnover, Kumar said.

Durban Chamber of Commerce CEO Andrew Layman said that the chamber was aware of the move, but was still consulting members.

“We are looking at it very closely. We have not yet completed an assessment into the implications the tax will have on businesses.

“We are still looking into whether it will be palatable for the business community.

“Tax on business does not go down well because operating businesses at the moment is very expensive and any sort of tax will just raise the operating cost of businesses,” he said.

eThekwini executive committee MF member Patrick Pillay said implementation of the tax needed to be scrutinised if the proposal was passed.

“We will be interrogating how the tax is applied because this could have a major impact on businesses and we cannot cripple them. The tax will definitely be beneficial to the municipality,” he said.

DA caucus leader Tex Collins said that the tax could have huge implications in the metropolitan area.

“Businesses are already highly taxed and a tax on businesses from the municipality could discourage investment. Businesses could relocate,” he said.

National Freedom Party eThekwini executive committee member Bongiwe Mtshali said the tax would be “unfair”.

“The municipality would definitely need to discuss the move further with businesses communities,” she said.

The eThekwini Speaker, Logie Naidoo, said there would still be a long process before the proposal was finalised.

“We will have to conduct studies to see how feasible implementation of the business tax would be,” he said.

“We also have to take into consideration that a business tax could cause hardship to many companies.

“But the proposal could be rejected or take many years to be implemented,” Naidoo said.

Kumar said that municipalities faced a significant fiscal gap between their expenditure responsibilities and revenue resources.

The gap arose mainly from the need to extend services to historically disadvantaged communities, the maintenance of existing infrastructure and the building of new infrastructure, and the provision of services to accommodate growth in local economies.

Close to half of the capital expenditure requirement of metros was to keep up with economic growth, 34 percent for clearing rehabilitation backlogs and 18 percent to meet apartheid backlogs.

Municipalities should spend R760bn on infrastructure in coming years, of which the share of the eight metros was estimated at R460bn, Kumar said.

Kenneth Brown, deputy director-general of intergovernmental relations at the National Treasury, encouraged metros and Salga to submit an application to the Treasury, but he cautioned that the timing of a local business tax would be key because of the current sluggish economy, as well as the high cost of doing business in South Africa because of such issues as high electricity tariffs.

He added that municipalities must also increase the portion of the budgets that they spent, as it would not make sense for them to raise money from taxpayers “and park it elsewhere”. - Jabulani Sikhakhane and Kyle Venktess

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