While the majority of South African businesspeople surveyed in advisory firm Grant Thornton’s latest International Business Report (IBR) have indicated that they would not relocate their headquarters to another country for any level of reduction in the corporate tax rate, most expressed a wish for the country’s corporate tax rates to be lowered.

Eighty per cent of the South African business owners surveyed said they would not relocate their businesses solely for lower corporate tax rates; however, 75% of these businesspersons urged the South African government to do more to ease the tax burden within the country and help relieve current economic pressures.

“Headline rates are not the only deciding factor for relocation of global headquarters.

“Of priority to most companies that operate internationally is how they can effectively manage their tax rates worldwide – a single improvement in one area isn't always enough of a draw card. However, a combination of factors does result in change, such as reduced corporation tax rates and other tax break incentives,” commented Grant Thornton Johannesburg director and head of tax AJ Jansen van Nieuwenhuizen.

More than 3 400 businesses in 44 economies were surveyed regarding corporate tax issues in the latest IBR.
 
Grant Thornton noted that, while the survey found that, globally, 67% of business owners would not relocate to another country for a reduced corporate tax rate, executives in the Brazil, Russia, India and China (Bric) economies collectively seemed to be most well disposed towards relocation for a lower corporate tax rate. 

Forty-one per cent of business owners in the Bric region were in favour of moving to another country for improved corporate taxes, with the remaining 59% opposed to this.
 
However, individually, the views of the Bric countries differed. In Brazil, 93% of business owners surveyed would not relocate, compared with Russia and India with only 23% and 29% respectively responding that they would not consider relocation for a lower corporate tax rate.

Meanwhile, the IBR showed that business executives in Botswana were among the top five countries in the world that would consider relocating their headquarters to another country if a lower corporate tax rate was on offer, with 62% of executives stating they would relocate, and a surprising 20% saying they would do so for just a 1% reduction in the current tax rate.

“South Africa would, however, not be considered as a relocation destination for Botswana executives because Botswana’s current corporate tax rate is 25% compared to our 28% current corporate tax rate,” explained Jansen van Nieuwenhuizen.

The survey highlighted that corporations worldwide were in favour of lower corporate tax rates, even if this meant eliminating other tax deductions.

In the Bric economies, an average of 77% were in favour of lowering corporate taxes at the price of sacrificing tax deductions, and globally, 68% of business leaders were in favour of lower corporate tax rates under the same circumstances.

“A trade-off between tax breaks and headline rates of tax, leading to an uncomplicated low tax rate with only a few deductions, has the advantage of simplicity. Tax breaks, however, are hard to remove once in place, especially in economies that are struggling to find growth and that use tax breaks to stimulate certain sectors or industries,” said Jansen van Nieuwenhuizen.

Meanwhile, most of the South African business owners surveyed (76%) did not feel government was doing enough with tax measures to help ease economic pressures.

This differed markedly from the views of business leaders in the Bric economies, with less than half – just 37% – stating they were dissatisfied with government’s attention to easing pressures through tax breaks.

Globally, 61% of business leaders surveyed did not think their governments were doing enough.  The countries with the highest dissatisfaction were Argentina (92%), Japan (86%), and Poland and Spain (both 82%).

“Given the current environment where tax is headline news, it would be ideal if governments cooperated more on tax issues and providing clarity on a global basis,” concluded Jansen van Nieuwenhuizen.