Companies to take on more of the tax burden
21 May 2012
Posted by: Dimakatso Motau
Prior to Finance Minister Pravin Gordhan’s Budget speech, many commentators were pondering how he would be able to source the taxes government required for the financial year in light of growing expenditure demands and a less robust revenue outlook.
Following the address, Rhodes University business school tax professor Matthew Lester argued that the Minister achieved his objectives by opting for a shift in the tax burden.
Speaking at accounting firm BDO South Africa’s post-Budget analysis event, Lester said the shift came against the backdrop of declining company tax collections, which had fallen to only 21% of the total tax take. The bulk of the tax burden had, thus, been on the individual taxpayer and value-added tax (Vat), which amounted to 36% and 28% of the tax revenue respectively.
The changes also took account of the fact that the South African Revenue Service stood to lose as much as R8-billion a year when secondary tax on companies is replaced by the dividend tax on April 1, and this was not sustainable. "Hence, the dividend tax will be implemented at a higher rate of 15%. This will compensate for the loss in revenue inherent to the dividend tax system when exemption from the tax is given to companies and retirement funds.”
In addition, new capital gains tax (CGT) rates would be effective from the 2013 tax year. Companies have had their inclusion rate increased to 66.7%, formerly 50%, and indi- vidual taxpayers to 33.3%, formerly 25%.
Lester argued that the change in the medical aid tax deduction to a rebate system, coupled with the taxation of group life and permanent health insurance fringe benefits and the CGT inclusion rate increase, would make this a challenging year for the individual taxpayer.
"Individual taxpayers will pay an additional R32-billion in income tax alone during 2012/13,” he said.
Consumers were spared the massive increases in Vat and fuel levies that could have been justified in the Budget. About 28 c/ℓ is a generous gesture from Gordhan during this period, where oil prices retail at over $110/bl.
The old-age grant was increased by R60 a month to R1 200 a month and to R1 220 a month for those over 75 years, while the child grant has been increased by R15 a month to R280.
Lester concluded that last year’s tax collections amounted to only R4-billion below a target of R742-billion.