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Mini-Budget 2010/11: Potential Squeeze Coming

26 November 2010   (0 Comments)
Posted by: TaxFind™
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Mini-Budget 2010/11: Potential Squeeze Coming

Finance Minister Pravin Gordhan did not utter the words "tax hike”, but fiscal realities point in this direction Overall, the "mini-Budget”speech by Minister Pravin Gordhan sends a promising message.

Tax revenue still down, but higher than expected
With revenue collections currently R31 billion higher than expected, coming mostly from VAT collections and improved retail spending, we could see some benefits next year in terms of lower tax increases than originally envisaged.However, taxpayers still need to be aware that the proposed National Health Insurance for 2012,which needs to be funded, will impact on next year's tax increase decisions significantly.
Improved financial management
It is encouraging that the Finance Minister remains focused on improving financial management in government on all levels.His mention once again regarding initiatives that are underway to stop wasteful expenditure and inefficiencies in government sends a strong message to SA taxpayers.
Focus on enforcement of tax compliance
There is a significant focus on tax compliance, which ranges from information exchange with other countries to, withholding taxes on monies paid out under government tenders.
Further relaxation of exchange controls mooted
The announcement of a phased approach to the releasing of exchange controls is extremely reassuring for our nation.Individuals will be the first to benefit from the easing of restrictions in terms of foreign investment allowances and blocked funds.South Africa's Headquarter Company regime, which will provide tax benefits to a South African company which is set up by a multinational to be a springboard into Africa and the rest of the world, will now also have a fighting chance against other jurisdictions., as it was stated that the effectiveness of these headquarter companies will not be hindered by exchange controls.
Tax and other tariff hikes likely
However, despite the good news that revenue collections have been higher than anticipated, the threat of increased taxes has not receded.
Government is still committed to the growth and job creation objectives it set during the Budget Speech earlier this year, and that this will necessitate higher expenditure. The increased collections announced by Finance Minister Pravin Gordhan will certainly help fund government's plans, but even though the budget deficit has also dipped below the 7% forecast earlier this year, we can still expect the deficit to continue for the next three to four years.Budget deficits can generally only be financed in two ways:through increased borrowings or higher taxes, so the likelihood that taxes will be increased remains strong unless collections continue to improve.
The voluntary disclosure programme that will give taxpayers one last chance to come clean about past tax and foreign exchange indiscretions starts in November,and will run for a year—but if this,together with continued compliance enforcement, doesn't lead to significantly improved tax collections, government is going to have to raise tax rates in future.
Taxpayers can also expect electricity, water, and other tariffs to increase, further adding to their burden. Although it was again confirmed that exchange controls will be further relaxed, there is limited room for optimism on the part of South Africa's citizens. We were also told that government is still determined to implement a National Health scheme, and although we have no idea when this will be, we can be certain that it will not be funded out of current revenue sources—and will therefore require additional taxes to fund it.
Source: By AJ Jansen van Nieuwenhuizen and Eugene du Plessis (Tax breaks)


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