State coffers could fill up even more if proposals in a tax avoidance discussion paper are implemented next year, Finance Minister Trevor Manuel said on Thursday.

The result could be an eventual reduction in tax rates, Manuel said at a "tax industry" breakfast in Cape Town, where he released a discussion paper on tax avoidance and Section 103 of the Income Tax Act.

As the loopholes in the current rules were closed, a greater tax over-run could be expected.

"But at the same time we must honour our word that as we get better at collecting tax, there will be a general reduction of rates."

Manuel said it was all about equity and improving the balance between the rich and the poor.

The new rules will primarily target businesses and high net-worth individuals who can afford tax consultants.

He said the poor could not afford to pay for tax avoidance advice, and as a result ended up paying the majority of the tax.

SA Revenue Services Commissioner Pravin Gordhan said this document was important for the country and the continent as it created a more equitable society.

"Deliberations on the matter can't be just technical in nature, it needs to be social too," he said.

A key question the paper raised was the distinction between tax evasion, impermissible tax avoidance, and tax planning.

SA Revenue Service adviser Kosie Louw said tax evasion was based on the non-disclosure of information, while impermissible tax avoidance involved contrived arrangements designed to exploit loopholes in the law.

While Sars and the Treasury firmly believed that the majority of South Africans were honest, hard working and willing to pay their fair share of tax, the pernicious effects of aggressive tax avoidance were many.

"Experience both in South Africa and internationally, as outlined in the discussion paper, has shown that harm caused by impermissible tax avoidance is varied and pervasive.

"Short-term revenue loss is clearly the most immediate and obvious problem, but by no means the only problem," Manuel said.

He explained that tax avoidance through the convertible loan structure alone cost the country R6-billion in fiscal revenue.

Among the changes suggested was the creation of a rebuttable presumption of "abnormality" whereby it would be the onus of the business or individual to prove their transaction was not done for the sole purpose of avoiding tax.

The document also sought to introduce penalties for scheme promoters and taxpayers that substantially underreported their income.

Manuel said "billions of rands" were being lost as a result of aggressive tax avoidance measures but said it was impossible to give an exact figure.

The document will be open for discussion until January 31.

Sapa

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