WRONG MOVE

Minimum tax not favourable with current business conditions - expert

The Government’s proposal for minimum tax is akin to twisting the knife in a stab wound- KPMG Tax advisor

In Summary
  • The proposed minimum tax levy is  targeted at the corporates which do not pay tax on their income when they report losses.
  • This introduced bill, comes on the back of a revelation that more than 90 per cent of companies failed to pay corporation tax in the financial year ended June 2019 in what puzzled the KRA.
The KPMG logo is seen at the company's head offices in Parktown, Johannesburg, South Africa, September 15, 2017. /REUTERS
The KPMG logo is seen at the company's head offices in Parktown, Johannesburg, South Africa, September 15, 2017. /REUTERS

A tax expert is opposed to the government's proposal to introduce minimum tax at a time when businesses globally are grappling with the effects of COVID-19.

“The Government’s proposal for minimum tax is akin to twisting the knife in a stab wound and even post-COVID, the recovery process may be slow and such a proposal would still be generally unwelcome,” said Samuel Maina, Tax Advisor at KPMG.

He however acknowledged that the move appears to be an attempt by the Government to broaden the tax base in a dwindling economy.

 
 

The proposed levy is targeted at corporates that do not pay tax on their incomes when they report losses.

“Any tax requirements for taxes levied on any business or individual must consider the commercial capacity of the taxpayer to comply with such requirements. A company reporting accounting losses clearly has no capacity to pay any taxes levied on the gross income,” said Maina.

If Parliament approves the Bill, the affected persons will start paying quarterly taxes on their income on the 20th day of the fourth, sixth, ninth, and 12 months — reflecting the tax payment schedule for corporation tax.

The bill comes on the back of revelations that more than 90 per cent of companies failed to pay corporation tax in the financial year ended June 2019 in what puzzled KRA.

According to Maina, it is understandable that the government requires additional sources of income more than before amid the pandemic but it needs to observe the tenets that guide the tax framework that may adversely impact the welfare of its own people.

“As most families continue to lose incomes, savings, jobs and homes, measures that will boost survival chances of businesses are vital at the moment, additional taxes on already struggling businesses will, therefore, do more harm than good,” he said.