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MANAGEMENT: SA Business Leaders to Stay in SA

 





Recent Gauteng Business News

New research from Grant Thornton reveals that 80% of South African business owners would not relocate their headquarters to another country for a lower corporate tax rate. In addition, more than 75% of these businessmen urge the SA government to do more to ease the tax burden within the country and help to relieve current economic pressures.

That’s according to Grant Thornton’s International Business Report (IBR), a survey of more than 3400 businesses regarding corporation tax issues, across 44 economies.

“Headline rates are not the only deciding factor for relocation of global headquarters,” said AJ Jansen van Nieuwenhuizen, director and head of tax at Grant Thornton Johannesburg. “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.”

While the survey found that globally, a sizeable two thirds (67%) of business owners would not relocate to another country for a reduced corporate tax rate, executives in the BRIC economies collectively seemed the most favourable towards relocation for a lower corporate tax rate. Over 40% of businesses in the BRIC region were in favour of moving to another country for improved corporate taxes (59% of BRIC businesses opposed relocation).

Looking at the BRIC countries individually, however, there is a discrepancy in views: in Brazil, 93% of business owners surveyed would not relocate, compared to Russia and India with only 23% and 29% respectively responding that they wouldn’t consider relocation for a lower corporate tax rate.

It is also interesting to note 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 not be considered, though, as a relocation destination for Botswana executives because Botswana’s current corporate tax rate is 25% compared to our 28% current corporate tax rate,” adds Jansen van Nieuwenhuizen.

The survey revealed that while 80% of South African businessmen would not relocate to another country for any level of reduction in the corporate tax rate, these same executives did express a wish for South Africa’s corporate tax rates to be lowered. In South Africa, 73% of business owners surveyed would favour lowering the country’s corporate tax rate, even if it meant eliminating other tax deductions currently in place.

“Obviously businesses always like more income,” said Jansen van Nieuwenhuizen. “Nobody wants to pay taxes – it’s a grudge payment in its simplest form. Any reductions would always, naturally be welcomed.”

The survey showed a similar trend with corporations worldwide wanting reductions in corporate tax rates. In the BRIC economies, an average of 77% were in favour of lowering corporate taxes, and globally, 68% of business leaders were also in favour of lower corporate tax rates at the price of sacrificing tax deductions.

“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.

Jansen van Nieuwenhuizen added that business likes certainty so any change needs a long lead time and clear communication.

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, two in five business leaders surveyed (61%) 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 co-operated more on tax issues and providing clarity on a global basis,” concluded Jansen van Nieuwenhuizen.

 
 
 
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