I continue to fail to come up with a positive spin to the proposed Local Business Tax being mooted by SALGA and several city governments, who intend to submit applications (in terms of the MFPFA of 2007) to the Minister of Finance for the introduction of a new original revenue source for local governments.
For days now I have failed in my hope to “fall into the light” and see my way clear to come out and say that the introduction of LBT would be a good thing.
The reasons put forward for the dire need for this LBT are:
- Local governments face a significant fiscal gap, especially in economic infrastructure and services
- There is a need to strengthen local government accountability for economic infrastructure and services
- Local governments face a significant fiscal gap between their expenditure responsibilities and revenue resources as a result of: Inherited apartheid (basic service standards) backlog, Maintenance of existing infrastructure backlog and have fallen behind on Infrastructure and services for economic growth and development
- Because local governments have focused upon dealing with the apartheid backlog, the maintenance and growth gaps are now especially significant
- The local government sector as a whole may need to spend R775 b over the next decade just on capital investments, and it could possibly finance only around half of that.
Cutting through all the jargon one can see that the need for going cap in hand to business and saddling them with YET ANOTHER TAX is as a result of the government’s hell bent concentration on fulfilling a admirable need for social development at the expense of making sure that the infrastructure to support business is maintained and expanded. After all, doesn’t business create the wealth to drive social development?
Has our government become the rabid Dementor sucking the lifeblood out of business?
Methinks that we have got to the stage where business could turn around and say; “No more”.
The estimated fiscal gap capex requirements over eight metros from 2010 to 2010 is R378.4 Billion – R19.6 Billion of which is attributable to the Nelson Mandela Bay Metro.
At the briefing, Roland Hunter (ex-CFO for Johannesburg Municipality and now consultant) said that the LBT should be based either on ‘Company footprint’ (which would tax important components of local value added, such as depreciation for capital services and remuneration for labour services) or on Turnover tax company turnover. To collect approximately R18.6 Billion per annum nationally would require a tax rate of 0.757% on the ‘company footprint’ tax base, or 0.323% on the turnover tax base.
Asked if the LBT would fall away at the end of 2020 neither NMB CFO, Kevin Jacoby nor Hunter envisioned it’s demise.
SALGA and the metros intend to submit the application to the minister by this year end with a view to implementation in 2013. The tax will be collected by SARS and only applicable to VAT registered business.
Sweetening the application to the Minister are planned efficiency improvements by the Nelson Mandela Metro of between 17 and 29% to yield an additional 4.5 to R7.6 Billion rand for infrastructure.
These efficiency improvements would derive from:
- Billing completeness
- Collections efficiency gains
- Debtors minimisation
- Tax and Tarriff Increases and
- Expenditure Increases
I don’t know about you but just looking at the above and recent history one will realise that the improvements asked for will be a MAMMOTH task for local government.
In addition the introduction of the LBT could lead to ‘double taxation’ as presently 10% of the profit derived from electricity sales must be used for infrastructure improvement. A question also hangs over equitable distribution of the fuel levy.
One would think that government had learned a simple lesson in economics – that by creating and maintaining a vibrant and stable economic climate and infrastructure in which business, innovation and employment could thrive they would be broadening and growing the tax basis which would magically create a “better life for all”.
Should you wish to comment on the proposed LBT please send your submissions to: Melanie Dolan at the Nelson Mandela Bay Business Chamber at info[at]nmbbusinesschamber.co.za by Tuesday 29 November 2011.
