Judge Davis calls for nuanced debate on tax

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Calling for a more nuanced debate about the role of tax in the South African economy and broader society, Judge Dennis Davis of the Western Cape High Court, explained that while tax plays an important part in the country’s economy, it is not the panacea for all the country’s challenges such as poverty, inequality, ailing education and healthcare systems.

Judge Davis, who chairs The Davis Tax Committee was addressing a Rhodes Business School Forum. He was speaking on "Balancing South Africa's imperatives and ensuring a sustainable economy".

He called on South Africans to take responsibility for the state of the country and not rely on politicians to remedy the situation.

“There is an extraordinary sense in South Africa that we believe the state can do everything, that the panacea for all the problems is to have an efficiently running state. Similarly, there is a perception that the tax system can fix everything, and the answer is that it can’t,” he said.

Judge Davis said corruption was having a destructive impact on the state, describing it as “the cancer in the fabric of our democracy”. He added that such high levels of “hemorrhaging out of the fiscus” make it increasingly challenging to balance the social wage in a developmental state like South Africa with an appropriate tax system that encourages investment.

The tax system currently collects around R1 trillion per annum and is judged by World Bank standards as the most successful tax transfer system in the world, exceeding other developmental states like Brazil.

Judge Davis posed the question, if the economy cannot grow at between 3-5% per annum, how is the Tax Committee expected to assist? “It is simple. The gap between what we collect and spend is going to increase,” he said, noting that the major challenge is to create a realistic framework within which to approach this challenge.

The World Bank statistics say two things, he said. Firstly, the present system works. The statistics predict that were it not for the transfers to the poor communities that are affected as result of tax system, South Africa’s genie coefficient would measure 0.79, with 1 as the most unequal. As it stands today, with that transfer in place, the genie coefficient is 0.59. He said it is imperative to bear in mind that the South African economy is addressing the legacy of inequality, a vital element for economic and constitutional stability with its own impacts on the economy.

Secondly, increasingly the financial burdens are born by smaller sections of the population. An analysis of the tax collection system over the past 20 years reveals a surge in the amount of tax collected from the wealthiest 10% of earners, from 55-80% respectively.

“The question is how much more can you get from there? Not a huge amount. So how if you were a tax committee would you, given the levels of inequality, tax the wealthy? But there is a limit to that source,” he said.

“The most important thing is to develop a system which is working so at least it will facilitate growth and job creation and not impede it. Striking a balance between having to create revenue and on the other hand ensuring balance between that and allowing companies and job creating entities to flourish,” he said.

The Davis Tax Committee is mandated “to assess our tax policy framework and its role is supporting the objectives of inclusive growth, employment, development and fiscal sustainability”.

Judge Davis is also the popular presenter of eTV’s Judge for Yourself,

By Sarah-Jane Bradfield

Photographer: Martin Rhodes

Photo source: BusinessDay