Schlettwein talks tough on clamours for tax reductions
Outspoken minister of finance, Calle Schlettwein, has said that he will not give ear to calls for a cut in taxes to allow for private sector to breath, create jobs and stimulate growth saying the current tax status quo is good enough for business.
Schlettwein was responding to questions last week on a panel discussion from the floor that interrogated the local economy’s past performance and future prospects.
“We have so much regulatory costs, number one. Number two, our corporate tax is so high and it’s not competitive. For example, US just cut their corporate tax from 35% to 21%. So imagine, if you have to do business, if you have to make provisions for your tax, on top of that you have inflation. You have to borrow money. So, almost 50% of your dollar is prepared to fund for you to continue to do business,” said an anonymous entrepreneur addressing the minister.
The minister, however, had none of it and bashed the private sector for egg-walking to the discussion table with government in order to chart the way forward on pro-growth partnerships.
“There are two elements, let me talk about the tax system. I do not think that we have an exceptionally high tax rate system. We’ve discussed that year in year out in our post budget discussions and it came out time and again that we are somewhere in the middle, comparing ourselves with close neighbours. We are not the highest, we are not the lowest, but we are in the middle. So the argument that our tax rates are too high, I think I do not buy into that,” he said.
The minister also said the tax system works in such a manner that for non-mining corporates the tax rate is 32%.
“The effective tax rate that you pay when you take into consideration all the deductables that are allowed, the erosion on that tax base, it brings you down to something between 20% and 25%. For manufacturers one’s tax rate in the book is 18%, while the effective tax rate is actually 2%. In fact, you pay almost no tax,” said the minister.
He thus bashed the argument to ask for tax reductions, where an effective tax rate is already very low, as not within the vicinity of what can be accepted and entertained by government.
“And it goes also to the question of why is education not incentivised by tax deductions. If we follow that policy, you are actually asking the state to fund education. And you want, as a private sector to be off the hook? Our quest is we must work together. You must come to the table. Instead of pretending to come to the table and say I am only coming to the table if you actually fund me through a tax incentive system,” he said.
He added, “So, that’s where we must change our thinking. On tax incentives, again, we believe that if you have a profitable organisation, yes we can stimulate that to grow by some tax incentives. The greater need at the moment is to incentivise start-ups to enter the market instead of existing ones to be more profitable.”
Meanwhile, the US president, Donald Trump, in his speech at the World Economic Forum held in the past weeks, boasted to the world that his “massive” tax cuts had seen employees pocketing thousands in bonuses.
“We’ve just enacted the most significant tax cuts and reform in American history. We have massively cut taxes for the middle class and small businesses. As a result, millions of workers have received tax cut bonuses from their employers in amounts as large as US$3 000,” he said.
Trump has also told the world that his tax cut bill is anticipated to raise the average American’s household income by more than US$4 000.