Budget 2015 predictions

By Ferdie Schneider, National Head: Tax, BDO South Africa

In his Medium Term Budget speech, Minister Nene emphasised that government’s revenue shortfall is of paramount importance. Taxation as a method of revenue generation is off-course most likely to be made use of.

The media and tax commentators have speculated widely on how tax could reduce or eradicate this shortfall. Below are a few options that address this in a somewhat hypothetical manner.

Personal Income Tax

The Minister could opt to increase the top marginal rate of tax from 40% to a possible 45% (or somewhere between 40% and 45%). The top rate of tax of 40% has been around for a number of years. However, this option should be very carefully considered in a country such as South Africa with a substantially skewed income distribution. The further downside is that we will be falling back to the high tax rates that applied in the 1980s. The Ministerial economists could, however, also decide to let the burden fall more heavily on the upper income levels by increasing the progressivity rate, i.e. by increasing the burden curve steeper towards the higher income earners. The disadvantage of this option, off-course is that you “kill the geese that lay the golden eggs” thereby incentivising the capital rich labour market to exit the labour market of South Africa. That in itself could have effects on tax compliance morality in an already heavily tax burdened country such as South Africa. Another effect could be that other vehicles may possibly be explored which are subject to lower tax rates and/or established in lower tax rate jurisdictions.

Corporate Tax

As it has been a stated objective of the Ministry to lower Corporate Income Tax rates, we may not see substantial or any movement in this respect. The Minister may, however, opt to extend the current focus of the revenue authorities to enhance sector specialisation ensuring optimisation from the current tax base.

Transfer pricing and global cooperation

With the increased emphasis globally on the transfer pricing regime, especially following the various reports of the OECD around country-by-country reporting, and the David Committee’s follow through report on the initial recommendations of the OECD in this regard in December 2014, we may well expect that the focus thereon will remain constant.

Global cooperation between revenue authorities, OECD members or not, will become more prevalent in future and we may expect to see more formalised and harsher cooperation agreements between countries.

Value-Added Tax

The Minister also has the option to increase the VAT rate from say 14% to say 15%, which will produce a significant yield. This is a possibility but could be politically damaging due to its perceived impact on the poor through its regressive nature as a consumption tax which taxes the poor and rich equally if the spend is the same. The biggest dilemma of the two has historically seemed to be the perceived political agenda. The ruling party may find itself defending such a decision in debates with the unions and broad base voters. Although, it should be added, that some studies have shown that the regressive nature of a VAT system may in fact be overestimated.

Fuel levy

It is very likely that the government will seek to increase the general fuel levy proportionally higher than in the past as it only rose by 12c/litre last year. Using this as a revenue instrument is questionable and one should preferably revisit the original purpose for the imposition of the fuel levy in the first instance.

Sin Taxes

Sin taxes validate the saying that “only two things in this world is certain, namely death and taxes”. However, it perhaps takes this saying further in that “a further thing that is (almost certain) is that sin taxes are made to increase”. This is especially so in a country such as South Africa where healthy living has increasing come to be under the spotlight and the tax base of sin taxes is continuously sought to be increased to reduce or eradicate the use of products subject to sin taxes. History has shown that we may potentially expect a higher than usual increase, especially in light of South Africa having a lower excise duty on alcohol and cigarettes than many other countries globally.

African Bank

In the Medium term Budget speech, Minister Nene announced certain measures and Rand investment commitments to get African Bank on track. We can probably expect an update of the direction and progress made in this regard.

Wealth Taxes

It has been suggested that a wealth tax may be introduced on high net worth individuals earning over a certain amount per annum. Considering this suggestion in the context of “brain drain” or the mobility of high net worth individuals (both inbound and outbound); the already high marginal personal income tax rates; and the existing taxes on wealth such as the Capital Gains Tax (CGT); Estate Duty; and arguable donations tax, makes this a difficult sell in the current South African economic and tax climate.

Incentivising savings

The Ministry has a number of options in this regard, all of which should involve extensive deliberations with the banking and insurance industries and taxation and economic specialists. A Tax Free Savings Account is likely to be introduced which will grant increased tax benefits to individuals to save up to certain amounts in a specific year (with lifetime limits). To some degree, this will have the effectto offset the higher income tax rates that are expected through bracket creep.

 



Latest


16 Feb 2021
Transition management services partnership announced

Standard Bank has signed a memorandum of understanding (MoU) with Chicago-headquartered financial services company Northern Trust, to partner on the…

Transition management services partnership announced

Standard Bank has signed a memorandum of understanding (MoU) with Chicago-headquartered financial services company Northern Trust, to partner on the delivery of transition management services across Southern Africa. Under the partnership, Standard Bank’s clients will gain access to Northern Trust’s full suite of transition management services. Transition Management is a…

16 Feb 2021
Tax free wealth creation with property funds

By Liliane Barnard, CEO and Portfolio Manager at Metope Investment Managers, and Aimee Glisson, Director: Operations, Performance & Risk at…

Tax free wealth creation with property funds

By Liliane Barnard, CEO and Portfolio Manager at Metope Investment Managers, and Aimee Glisson, Director: Operations, Performance & Risk at Metope Investment Managers The tax year, along with the deadline for an investor’s maximum R36 000 annual tax-free savings account contribution, comes to an end on the 28 February 2021. Investors…

16 Feb 2021
Why multi-manager investing is popular

Multi-management has been around for over two decades. This investment management approach is popular among many investors because it promises…

Why multi-manager investing is popular

Multi-management has been around for over two decades. This investment management approach is popular among many investors because it promises to deliver smoother, more consistent investment returns, despite cyclical turbulence of financial markets. Given last year’s drastic swings in financial markets and continued uncertainty on how the Covid pandemic will…

16 Feb 2021
Momentum Health Solutions unpacks COVID-19 vaccine roll-out plan

Momentum Health Solutions announced its COVID-19 vaccine roll-out strategy and how it intends to support both its members, as well…

Momentum Health Solutions unpacks COVID-19 vaccine roll-out plan

Momentum Health Solutions announced its COVID-19 vaccine roll-out strategy and how it intends to support both its members, as well as the uncovered population, in being vaccinated. As the COVID-19 virus continues to spread, a third wave is imminent, should the vaccination rollout not commence soon. Speaking at a recent…


Top stories


10 Sep 2020
How too much choice is draining your brain

By: Paul Nixon, head of technical marketing and behavioural finance at Momentum Investments From the words of Francis Scott Key…

How too much choice is draining your brain

By: Paul Nixon, head of technical marketing and behavioural finance at Momentum Investments From the words of Francis Scott Key that dubbed America “The land of the free”, which stuck, to the unforgettable Mel Gibson monologue where an army of painted Scots were willing to trade their lives for the…

13 Apr 2020
Investors should keep a reasonable investment allocation outside of SA

MoneyMarketing asked Roland Gräbe, the head of Tailored Fund Portfolios at Old Mutual Wealth, about offshore investments in the COVID-19…

Investors should keep a reasonable investment allocation outside of SA

MoneyMarketing asked Roland Gräbe, the head of Tailored Fund Portfolios at Old Mutual Wealth, about offshore investments in the COVID-19 environment and what form a global market recovery will take.

13 Apr 2020
SA’s Proposed Covid-19 Disaster Management Tax Relief

The National Treasury recently issued the draft Disaster Management Tax Relief Bill (Bill) for public comment by 15 April. The…

SA’s Proposed Covid-19 Disaster Management Tax Relief

The National Treasury recently issued the draft Disaster Management Tax Relief Bill (Bill) for public comment by 15 April. The draft Bill, together with its explanatory memorandum, provides clarity with regards the tax relief measures President Cyril Ramaphosa announced on 23 March.

10 Apr 2020
When the going gets tough, farmers are on familiar territory

South African farmers are old hands at adapting to uncertain and daunting circumstances, and our local agricultural industry has proved…

When the going gets tough, farmers are on familiar territory

South African farmers are old hands at adapting to uncertain and daunting circumstances, and our local agricultural industry has proved to be most enterprising in acclimatising to challenges as they arise.


Visit the official COVID-19 government website to stay informed: sacoronavirus.co.za