1995 - National Treasury

-2.25-
2.3 TAX ISSUES
2.3.1 Trends in the composition
of revenue
South Africa's ratio of central government current
revenue to GDP has been about 25 per cent in
recent years, which represents a marked increase
on the average of about 20 per cent in the early
1980s and even lower prior to that. Direct taxes
contributed about 58 per cent of total tax revenue
between 1991/92 and 1994/95, compared with
some 70 per cent in the early 1980s. Revenue
from indirect taxation has increased over the
year.;, largely due to the introduction of a broad
general sales tax in 1978 and its replacement by
a vaue-added tax in 1991, and increases in the
rates at which these taxes have been set.
Collections from taxes on international trade
transactions have remained about 1 1 /2 per cent of
GDP over the past decade.
Past trends in the composition of national
government revenue are illustrated in chapter 5.
Details of revenue collections since 1975/76 as
traditionally classified, and according to the internationally
standard GFS classification, are presented
in tables 1 and 2 of annexure B.
2.3.2 The Interim Report of
the Katz Commission
The Commission of Inquiry into certain aspects of
the Tax Structure of South Africa (chaired by
M.M. Katz) was appointed on 22 June 1994 and
submitted its Interim Report on 18 November
1994. The Commission carried out a broad review
of the tax system in accordance with its
terms of reference. These included:
the implications of the Constitution for the
tax system;
• implications for taxation of the RDP;
• personal income tax;
• company tax;
• the impact of the tax system on the position
of small and medium enterprises;
• value-added tax;
• tax exempt institutions;
• tax incentives;
the impact of the tax system on saving and
investment;
• the relevance of the tax system to foreign
finance, investment and trade; and
tax administration and collection and related
matters.
The Commission approached the several critical
issues within the framework of an initial set of
guiding principles. These included the Government's
broad policy framework as articulated in
the RDP, the importance of the tax system's
contribution to facilitating growth in the economy
and the imperative of an integrated tax system
subject to the Constitution and to society's
commitment to the Rule of Law. Recommendations
were then formulated after wide and transparent
consultation and research.
During the short time available to It, the
Commission has made numerous recommendations
which have already attracted extensive
public debate. The Commission's findings were
referred to the parliamentary Joint Standing
Committee on Finance which has since issued a
report after receiving public comment on the
recommendations made by the Commission.
A major thrust of the Commission's report is that
reforms aimed at enhancing tax administration
and collection are necessary. Government endorses
the proposals in this regard and is of the
opinion that a more efficient tax administration will
facilitate the implementation of the Commission's
further tax proposals as well as other initiatives.
Several of the Commission's further recommendations
are accepted by Government and will be
given effect in this Budget and during the course
of 1995. In several other instances, sound recommendations
cannot be implemented at present as
progress in the area of tax administration is a
prerequisite for the required reforms. In addition,
as the Commission and the Joint Standing
Committee point out, various issues require further
analysis and consultation before they can be
translated into firm proposals. The Government
has therefore decided that the Commission should
continue its investigations and focus on those
issues which it singled out for further analysis,
issues referred back for re-evaluation and
additional matters that have been or will be
referred to it, such as the feasibility of a land tax.
Aspects of the implementation of tax reforms will