No new tax measures for distressed companies, says Mboweni

FINANCE Minister Tito Mboweni has ruled out any possibility of new tax measures for companies facing financial distress due to Covid-19, saying they can utilise the existing tax administrative measures to apply for hardship relief.

Mboweni said this in a written response to parliamentary questions from IFP MP Mzamo Buthelezi who asked whether he intended to revise the corporate taxation regime to boost post-Covid-19 recovery.

Buthelezi also enquired about plans to incentivise investment in local production through tax incentives.

In his reply, Mboweni said he generally only maded tax announcements when he delivered his Budget speech.

He also said given the exceptional circumstances after the first Covid-19 lockdown, he made tax announcements on March 29 and April 23, 2020 to provide tax relief to businesses and individuals during the 2021/21 financial year.

“Two of these measures applied to corporations, namely delaying the base-broadening measures I had announced in the previous Budget and deferrals for provisional tax payments. These measures have now run their course.”

Mboweni also said the corporate tax regime already contained automatic stabilisers as a tax on profits, and as companies’ profitability recovered so would revenue from corporate income tax.

“Companies that face financial distress can utilise the existing tax administrative measures to apply for hardship relief. To aid the medium-term recovery, I announced in the 2021 Budget speech the overall intention to restructure the corporate income tax system in a revenue-neutral manner, through a combination of a tax rate reduction and base-broadening measures.

“These measures are expected to enhance efficiency, transparency and fairness in the corporate tax system.

The design of the corporate income tax system can influence taxpayer behaviour, which impacts the economy.”

He said a corporate income tax regime characterised by a broad base (fewer tax incentives and exemptions) and a lower rate was simpler with less loopholes and required less onerous anti-avoidance legislation.

Mboweni also said introducing additional further tax incentives would also work against the country’s objective to broaden the tax base and lower the tax rate for all businesses, and to do so in a revenue-neutral manner.

He said tax incentives provided certain taxpayers/industries with preferential treatment compared to what was generally available to all, creating opportunities for vested interests and lobby groups.

“The National Treasury has already commenced a process to review existing corporate tax incentives with a view to repeal those that are redundant and include sunset dates where there are none.”

Studies conducted by international organisations, such as the International Monetary Fund, the Organisation for Economic Co-operation and Development and the World Bank confirmed that investors also valued other factors above tax incentives when making investment decisions.

“These include political and policy certainty, infrastructure, access to markets, access to skilled labour, etcetera.

“Reducing the corporate income tax rate and broadening the base is a better means of benefiting all businesses. In turn, employees and consumers can also benefit from higher wages and lower prices,” Mboweni said.