One of our well-known South African economists, Mike Schüssler, has been saying for a long time that South African firms are paying too high tax. In a recent article in Moneyweb he explains why and how South African firms pay much higher taxes than our main competitors. As we are awaiting our national budget to be published in a few days I think these kinds of articles are very important.
What Mike is not discussing in enough detail is that we should also consider the other indirect financial burdens on South African firms (that they also see as taxes). For instance, South African firms have to spend a higher premium than others on skills development and for skilled workers. Our firms also suffer from more downtime due to industrial action, and we are drowning in labour and other laws that we don’t fully understand. I would also include Black Economic Empowerment programmes that often further increases the costs of doing business in South Africa and that also raises the costs of securing potential staff, partners and contracts. Another indirect tax in business is the very high transaction costs to acquire internationally sought after skills, a process that is made extremely difficult due to our clumsy policies on immigration. Comparatively speaking we are paying an indirect transport tax because we are often far away from both our markets and important suppliers.
No wonder so many large (and small) South African firms have moved many of their activities out of the country.
However, most of these issues are not dealt with by the minister of finance. It is a highly sensitive issue that is made explosive not only by political rhetoric, but by the stark differences between the health of our private sector (which includes the health of its direct and indirect dependents), the health of our public sector (and its direct and indirect dependents) and the health of the society that is not benefiting directly from our private and public sectors (I call this group the excluded sector). To decrease the size of the excluded sector we have to address the health and well-being of the public and private sectors as much as we try to absorb the excluded people into a healthier society. We need to be very concerned about the health and the wealth of the private sector, as much as we are worried by the costs and the complexity of addressing the reasons why so many people are still excluded from a healthy and happy society. This means that we should be sensitive to the fact that running a business in South Africa is often expensive for more than just tax reasons, but due to those indirect taxes that we also have to absorb. to be profitable in South Africa is not so easy – ask any small business owner that’s been around for more than five years!
My advise is for an understanding that the private sector is under financial strain. This is caused not only by the direct taxes, but also by indirect taxes like I’ve mentioned. We should be not only tax competitive, but also aware that we have higher costs (and often smaller markets) and a scarcity in higher-skills. We might be killing the goose that lays the golden egg. I wonder how many more businesses would be financially viable if we could directly address (or maybe even acknowledge) those other indirect taxes. I believe that the private sector is overtaxed on all fronts.
