Sep 12, 2012
Consider tax regimes that favour industry over finance - UnctadBack
Johannesburg|Africa|Gas|Industrial|Mining|Resources|Systems|UNCTAD|Africa|South Africa|Income Groups|Oil|Progressive Taxation Systems|Services|Social Services|Solutions|Systems|Alex Izurieta
© Reuse this
The recommendation is contained within the 175-page ‘Trade and Development Report, 2012’, which was released globally on September 12 under the theme of ‘Policies for inclusive and balanced growth’.
Unctad economist Alex Izurieta, who presented the report's findings in Johannesburg, said the recommendation of differential tax rates was premised on the need to stimulate long-term growth and development by improving levels of employment, as well as employment conditions.
Various solutions were considered by the authors, including aligning tax rates to the creation of jobs. “In that way, you are discriminating immediately between the financial and the industrial sectors, because the financial sector doesn’t create as much employment,” Izurieta asserted.
Higher rates should apply especially on speculation and unearned capital gains, which “provide no benefits to the overall economy”.
“Taxation of transactions in equity, bond, currency and derivatives markets, applied internationally or nationally, may help check a further expansion of destabilising speculative activity,” the report stated, adding that taxing financial-sector bonuses at a higher rate than regular wage incomes could also reduce the incentive for excessive risk taking.
Besides considering tax regimes that discriminate in favour of industrial sectors, the report also calls for deployment of progressive taxation systems to ensure that high-income earners contribute more to government revenues.
Unctad argues that, while lower taxation on high-income groups and company profits was expected to lead to greater growth-supporting investment, the reforms actually fuelled inequality without providing better social services, higher investment and stronger employment creation and growth.
For resources-rich developing countries, such as South Africa, Unctad recommends that governments seek to appropriate “a greater share of commodity rents” to ensure that this wealth benefits the entire population and not only “a few domestic and foreign actors”.
“There appears to be considerable scope in many countries for collecting a larger amount of royalties and taxes, especially from companies active in the oil, gas and mining sector.”
Izurieta said commodity prices had supported growth in Africa, but warned that these prices had become more volatile, partly because of the growing presence of financial investors in commodity markets. The report notes that there was almost a 40-fold increase in commodity assets under management between 2001 and 2011.
There should also be a recognition that the terms-of-trade gains were likely to be temporary and, therefore, should not be relied upon to sustain government revenues.
“However, even if temporary, the higher rents and windfall profits in the primary sector can still be used to help accelerate productivity growth and job creation elsewhere in the economy. This requires special taxation of the windfall profits and channelling them into productive investments elsewhere in the economy.”
Apart from the progressive tax recommendations, the Unctad report also suggests greater public spending to reduce inequality, as well as active policy interventions to avoid further “wage compression”, as a tool for expanding employment.
In fact, the report argues that cutting wages in the context of a fragile recovery would be counterproductive as it would dampen demand even further.
By contrast, higher wages and lower inequality could stimulate demand and output growth, which could provide the basis for increased investment.
“If overall productivity grows without a commensurate increase in wages, demand will eventually fall short of the production potential, thereby reducing capacity utilisation, profits and investment.”
Edited by: Creamer Media Reporter© Reuse this Comment Guidelines (150 word limit)
Other Construction News
Updated 29 minutes ago Downscaling by South African primary steel producers was “unavoidable” despite recent protection measures, outgoing Steel and Engineering Industries Federation of Southern Africa (Seifsa) president Ufikile Khumalo cautioned on Friday. Khumalo is also chairperson of...
Updated 1 hour 44 minutes ago Evraz Highveld Steel and Vanadium creditors would, on Tuesday October 13, vote on a business rescue plan, which included a recommendation that International Resources Limited (IRL), of Hong Kong, be allowed to purchase the company. The vote was initially set for...
Updated 16 minutes ago Amid looming water shortages in the Cederberg and Matzikama local municipalities as a result of the low level of the Clanwilliam dam, the Western Cape government is closely monitoring the impact of unusually dry seasonal weather in some regions across the province....
Updated 33 minutes ago The 5.8 MW Adams and 5.8 MW Bellatrix solar projects, in the Western Cape, have been selected under the Department of Energy’s (DoE’s) Renewable Energy Independent Power Producer Procurement Programme (REIPPPP), becoming the first projects under the programme to be...
Updated 34 minutes ago It is “nonsensical” to compare South Africa’s nuclear ambitions with Germany’s mission to scrap nuclear in favour of renewable energy, according to the Nuclear Industry Association of South Africa (Niasa). German ambassador to SA Walter Lindner told delegates at the...
Recent Research Reports
Liquid Fuels 2015: A review of South Africa's liquid fuels sector (PDF Report)
Creamer Media’s Liquid Fuels 2015 Report examines these issues in the context of South Africa’s business environment; oil and gas exploration; fuel pricing; the development of the country’s biofuels industry; the logistics of transporting liquid fuels; and...
Road and Rail 2015: A review of South Africa's road and rail sectors (PDF Report)
Creamer Media’s Road and Rail 2015 report examines South Africa’s road and rail transport system, with particular focus on the size and state of the country’s road and rail infrastructure and network, the funding and maintenance of these respective networks, and...
Defence 2015: A review of South Africa's defence sector (PDF Report)
Creamer Media’s Coal 2015 report examines South Africa’s coal industry with regards to the business environment, the key participants in the sector, local demand, export sales and coal logistics, projects being undertaken by the large and smaller participants in the...
Real Economy Year Book 2015 (PDF Report)
There are very few beacons of hope on South Africa’s economic horizon. Economic growth is weak, unemployment is rising, electricity supply is insufficient to meet demand and/or spur growth, with poor prospects for many of the commodities mined and exported. However,...
Real Economy Insight: Automotive 2015 (PDF Report)
Creamer Media’s Real Economy Year Book comprises separate reports under the banner Real Economy Insight and investigates key developments in the automotive, construction, electricity, road and rail, steel, water, gold, iron-ore and platinum sectors.
Real Economy Insight: Water 2015 (PDF Report)
Creamer Media’s Real Economy Year Book has been divided into individual reports under the banner Real Economy Insight and investigates key developments in the automotive, construction, electricity, road and rail, steel, water, coal, gold, iron-ore and platinum sectors.
This Week's Magazine
At the sixth IQ Business conference held in Sandton last month, a panel of business leaders and academics advocated that business reclaims the initiative to spur growth in South Africa amid fragmented and haphazard political direction. Management consulting firm IQ...
The building industry is an essential component of the South African economy as it contributes about 15% to the gross fixed investment that drives the economy. However, with the country’s economy going through a tough time currently, this, in turn, reflects on the...
The recipients of the 2015 South African National Energy Association (Sanea)/South African National Energy Development Institute Energy (Sanedi) Awards were announced at a ceremony and banquet in Sandton last month. Sanea chairperson Brian Statham named Exxaro CEO...
As South African information technology (IT) firm EOH posted another full year of strong growth, CEO Asher Bohbot, known for his frank words, people-centric management style and stoic humanism, attributed the company’s continued South African and African growth to...
International heavy-equipment engine manufacturer Cummins’ regional distribution centre (RDC) in Woodmead, Gauteng, has halved the average logistics distribution time for clients in Southern Africa and allowed for critical or long-lead stock to be kept closer to...