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A negative reaction can be expected from large business organizations who will assuredly pay a great deal more tax than they are now paying.
Nov. 10, 2011
Consultations with a large building company evoked the following response:

While Teal would be greater than corporate tax, their clients and their own internal structures and products would benefit from the removal of vat. TEAL, at whatever rate, would simply be factored into all their costs of operation. There would be a huge reduction in all forms of tax administration, particularly at year-end involving maximizing of tax benefits. All these factors were rated highly as benefits of TEAL. That a small percentage increase in their selling prices would cover all their tax liabilities and hardly be noticed after the elimination of vat, was deemed to be a strong positive for TEAL.

In an even more positive response, when approached about TEAL, a very prominent South African retailer said he saw no downside to TEAL and to the contrary, if TEAL were ever implemented he would immediately open a further 10 stores.

A tax system must accommodate the ability of the poor to pay.
Nov. 10, 2011
The present system imposes 14% vat plus sundry other hidden taxes on even the poorest. TEAL will impose perhaps as little as a 1% levy in place of all those taxes, even on the poorest. It is supremely equitable that someone who earns 100 times more than another should pay 100 times more tax than that other, and that a project that makes many demands on the economy should pay more than one that makes fewer demands on the economy.

In this way TEAL taxes the poor at a level that they can afford and the rich at the level that they can afford.

A tax system should address social justice
Nov. 10, 2011
Social justice means different things to different people. Deficit budgets penalize our children for our benefit. There is no social justice in that. Teal will permit adequate funding of all social needs and at the same time eliminate deficit funding.

That is social justice.

Banks are not going to act as tax collectors without charging for the service.
Nov. 22, 2011
Like they charge for collecting VAT and PAYE and Stamp Duties and other taxes and levies related to their doing business? The thing is that no business or employee charges the state for collecting taxes on behalf of the state. It is the law which imposes the duty on them to make those collections and pay them over. In that respect TEAL will be no different from any other tax.

Benefits - what are the principle benefits of TEAL?
Nov. 19, 2011
Simplicity of application and cost effectiveness of the collection process.

For individual taxpayers - a reduction from something like 60% of income to perhaps only 1% of income and the meeting of all tax obligations in a single simple process that does not involve them administratively - i.e. no more tax returns.

For corporate taxpayers - the ability to simply meet all tax obligations with a single simple process that also does not effect them administratively, i.e. no more tax returns, also no more involvement in the tax affairs of their employees and other trading partners.

Can you expect a negative response from tax professionals?
Nov. 19, 2011
Tax specialists are likely to be negatively effected and be unhappy about that. Particularly accountants and lawyers who specialize in tax matters will in time have to re-deploy their skills in other specialties of their professions as new tax business runs down. Greater emphasis will probably be given to matters such as effective corporate and business accounting and legal management. This should result in better run businesses arising from their focusing on their core business needs rather than being distracted by having to focus on meeting their tax obligations.

Chaos will result from changing the tax system, particularly if you've got it wrong.
Nov. 11, 2011
TEAL will be implemented in a phased process. Each tax in turn will be targeted. When TEAL is generating the equivalent of the targeted tax, the tax will be phased out and TEAL will be retained in its place.

Could employees arrange for employers to pay major expenses directly for them in lieu of salary payments?
Nov. 10, 2011
Part of the regulatory framework would be the requirement that all formal wages and salaries be paid directly into the employees' formal bank accounts.

Expect government to apply TEAL as an additional tax rather than a replacement tax.
Nov. 10, 2011
That unfortunately is what would happen under many governments and particularly can be expected of the current government. Approaches to the tax man and treasury evoked exactly that response, viz. that TEAL would be used as an additional tax. The trick would be to vote for a political party which pledges to use TEAL as a replacement tax and not as an additional tax.

How are informal traders effected by TEAL? eg Do street vendors transactions attract TEAL?
Nov. 11, 2011 by Admin
The short answer is that all transactions attract TEAL. But importantly, is it even desirable that the poorest of the poor should be contributing to TEAL and what happens if they are simply ignored?

The solution to this will probably be contained in the regulatory framework for TEAL which could define what a formal and informal trader is, perhaps in terms of his/her turnover and gross profit compared to the the poverty datum line.

So, a turnover of say R200 or more a day (say R6 000 or more per month turnover) might be deemed that of a formal trader who is required to bank his proceeds intact. As to the rest, we already know that the monetary throughput of the National Payment System is more than enough for the purposes of TEAL, so the absence of the rest of the informal / vendor sector would not be particularly missed. Their rendering an important service to their customers is probably more important to the economy than any TEAL missed from their exclusion. But in any event, their suppliers will undoubtedly fall within the formal sector and the economic activity generated by the vendors will be captured one level above.

We see their exclusion more as a positive feature of TEAL. It is important that TEAL should not hinder the poorest of the poor from engaging in honest trade to earn a living.

How will TEAL impact on SARS and their employees?
Nov. 11, 2011
Administration of TEAL will no doubt need much fewer staff than administering the plethora of existing taxes and dealing with millions of individual and corporate taxpayers. What happens to superfluous staff would be a political decision. However, the Foundation's suggestion would be to re-train redundant staff, on a voluntary basis, as public sector accountants and auditors and to re-deploy them in the public sector, probably with enhanced service conditions compared to those under SARS, or to provide staff with a severance package that includes retraining in the profession of their choice.

How will the rates for TEAL be controlled?
Nov. 19, 2011
Teal is initially envisaged to be 1% in total, 1/2% on deposits and 1/2% on payments. The Foundation understand that the application of TEAL will likely change the levels of economic activity from the present levels. Some factors will increase the levels of economic activity and others will decrease the levels. Each event will result in a need for a higher or lower levy. We cannot predict that. Other circumstantial changes over time may demand changes in the level of the levy.

The expectation is that TEAL may be reduced by presidential decree but can only be increased by a special act of Parliament, perhaps requiring a two thirds majority.

If everyone pays less taxes because all other taxes are replaced by TEAL, where does all the extra money for TEAL come from?
Nov. 10, 2011
The advantage of TEAL is that it vastly broadens the tax base (estimated by 28 fold) and because it does that, it can vastly reduce the rate of tax needed to fund the country's needs. Put another way, it doesn't create money so much as taxes sources that were otherwise outside of the tax net.

It also levies a different base from that of traditional taxes. It levies economic activity and all sectors of the economy are levied equally in proportion to their economic activity. Traditional taxes typically use trading profits or income or commodities (like fuel levies and vat) or access (like road tolls) and apply different rates to different taxes often intended to address specific needs.

If TEAL has so many potential benefits, why is it not operated anywhere else in the world?
Nov. 10, 2011
The short answer is that the world is looking at financial transaction taxes and in due course will be forced to adopt them in some or other form. It is being mooted in the USA as a means of deficit reduction, and in the EU, also as a means of deficit reduction, while the voice of reason, David Cameron, Britain's prime minister, has already seen the light and opined that if a financial transaction tax were to be applied in Britain it would be universally applied - which is pretty much what TEAL does - except that TEAL is a flat rate transaction levy rather than a tax. A Financial Services Tax can have all sorts of conditions, exceptions and limits applied. Not so with TEAL. Tax is the past, TEAL is the future.

Projects will pay TEAL during development periods before income and profits are generated.
Nov. 10, 2011
All projects absorb taxes (eg vat & labour taxes) into development costs. Teal, at a significantly lower rate than those taxes, will replace them, resulting in net cost savings during development.

TEAL is good for a low volume high profit business but not good for a high volume low profit business.
Nov. 10, 2011
Whatever volume and profit a business trades at, profit margins are based on the trading costs of the business. A low profit business cannot just exclude say 50% of its fuel costs (ie the probable levy on fuel) on the basis that it will impact negatively on their profits. Instead levies and taxes are absorbed into their costs of product and operation, which determine the cost to which they add their profits. In any a low profit business, eliminating vat (say 14% of their cost of purchases) and the fuel levy (say 5% of their operating costs) and other hidden taxes, and then adding the 1% TEAL in their stead, should result in a lowering of cost, to which they can then add their normal 2.5% (or whatever) mark up. Their cost of sales and selling prices should both reduce but their gross profits should remain firm. Their turnover should increase, a function of lower selling prices and their net profits should increase as a function of their increased turnover. Everyone is a winner.

Low volume high profit business and a high volume low profit business should both derive equal benefit from TEAL.

Won't everyone flee the banks and deal in cash and barter?
Nov. 10, 2011
The regulatory framework will apply TEAL to all transactions, including cash and bartering, and any significant transactions outside of the banking system will attract TEAL. So any persons transacting in such a manner as to avoid TEAL will be deemed to be acting as private or informal banks. Failure of formal or informal banks to collect and pay over TEAL will attract stiff penalties.

At an informal level, cash and barter systems are inconsistent with a modern economy, have high risks attached to them and are simply too impractical to be deemed a serious threat to TEAL.

Won't the cascade effect of successive contributors to a manufacturing process, even of a small levy, cancel the benefit of the removal of vat?
Nov. 10, 2011
TEAL does not just replace vat, but all other state revenue, all of which have a cumulative cost implication in the production process and which individually and collectively, exceed the impact of TEAL in the production process. This should result in a lowering of the costs and sales values of manufactured goods.

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