Posted on October 21st, 2014 in Press Releases
The Federation of Unions of South Africa (FEDUSA) calls upon the Minister of Finance Nhlanhla Nene to consider the recommendations of the tax review committee headed by Judge Dennis Davis – to ban transfer pricing – through the introduction of dedicated legislation in the Medium Term Budget Policy Statement (MTBPS) as a measure to protect the South African tax base.
The South African economy has faced serious headwinds of low economic growth, high unemployment, unstable labour relations, inflationary pressures and deteriorating fiscal and current account deficits said FEDUSA General Secretary Dennis George.
The research of the Organisation for Economic Co-operation and Development (OECD) shows that multinationals transfer billions of Rands from high-tax to low-tax jurisdictions to avoid paying their fair share of taxes. National Treasury was shocked to discover that corporate tax revenue in South Africa declined from 7.2 per cent of GDP in 2008/2009 to 5.5 per cent in 2009/2010 and 4.9 per cent in 2010/2011. This decline in corporate tax revenue was a major concern for government. This ratio recovered marginally in 2011/2012 to 5.1 per cent, but has deteriorated again to 4.9 per cent in 2012/2013. Furthermore, the National Treasury claims that corporate tax revenues fell suddenly from an average of 23.4 per cent in the 1980s to 14 per cent between 1990/1991 and 1999/2000 concluded George.
Transfer pricing occurs when it is used as a tax-avoidance measure to shift profits offshore to tax havens with low-tax jurisdictions, therefore South Africa is estimated to lose tens of billions of rand annually from the abuse of transfer pricing by multinational groups. It is therefore imperative for government to introduce new legislation and to collaborate with the OECD on Base Erosion and Profit Shifting (BEPS) as mandated by the G20 to ensure that this evil practice is eradicated from the international tax jurisprudence in order to bring about international social justice. Transfer pricing is open for abuse by local companies who sell their goods or services within a multinational group to an offshore associate in a low-tax jurisdiction, or sells them at a marked discount.
FEDUSA calls on the Minister of Finance to use the MTBPS as a real opportunity to present government’s plans to restore our national finances to sound health over the next three years. It is therefore critical for the Minister to shape his approach on problem solving tactics as presented by President Zuma to build a sustainable mining, manufacturing and transport and all other economic sectors as well as the work the Deputy President Ramaphosa in the National Economic Development and Labour Council (NEDLAC) as they are working towards establishing a deeper social partner agreement with organised labour and business.
FEDUSA is of the view that Minister Nene is knowledgeable and should build on the post 1994 experience where the budget deficit of 4.8% of GDP in 1994 was reduced to 0.5% in 2005 and the surplus on the budget that followed provided fiscal space to increase expenditure without having to increase borrowing. It is however essential for government to use social dialogue as a method to achieve social and economic goals as well as listen to voices of social partners in societies and workplaces to accomplish inclusive economic growth for all, indicated George.
FEDUSA supported the counter-cyclical stance of government to invest in infrastructure, education and health, combined with growing local procurement as critical drivers to stimulate inclusive economic growth to bring about more equitable outcomes. The counter-cyclical stance involves wisely increasing spending in times of economic contraction in order to support growth and employment creation, and to avoid unwise massive spending increases while the economy is expanding. FEDUSA wants to impress upon all South Africans to realise that deep inequalities and unemployment remain from apartheid and it is only through addressing the structural realities in the economy, and that it is possible to create a more communally comprehensive society. The Federation is not too concerned about the higher budget deficit since the 2008 global economic financial crisis, as the current debt levels remain sustainable with ongoing measures to ensure that the debt-to-GDP ratio of the country remains economically stable, stated George.
Fair compensation for public servants is imperative to support inclusive economic growth. However, it is critical to maintain a realistic and sustainable balance concerning the percentage of non-interest expenditure as it could result in a reduction of scarce financial resources available for social spending, infrastructure and other important priorities of the country to restore higher inclusive economic growth. FEDUSA is of the view that it is important to conclude a realistic and practical wage agreement with trade unions in the public sector that could translate into a sustainable approach over the medium to long term – without having to reduce essential spending on the core and critical skills needs for quality public service delivery, postulated George. It is also critical for the social partners to develop a modern approach to collective bargaining to ensure more sustainable outcomes for workers and enterprises, expanded George.
Pertaining to monetary policy, it is critical to follow a flexible approach to maintain price stability to ultimately ensure balanced and sustainable inclusive economic growth. It is equally important for the Monetary Policy Committee (MPC) to consider the origins of oil and food price increases as well as the administrative prices to keep inflation as public enemy number in place. The Rand exchange rate is a further risk to the economy and government should address structural inefficiencies, while the MPC should follow a more accommodating and flexible approach that takes into consideration that inflation could be imported and beyond control of policy instruments, maintained George.
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Dennis George (FEDUSA General Secretary) 084 805 1529