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SA should not expect major announcements on tax policy

Tuesday, 28 January 2014   (0 Comments)
Posted by: Author: Nazrien Kader
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Author: Nazarien Kader (Deloitte)

Finance Minister of the year 2013, in Sub-Saharan Africa, Pravin Gordhan, will occupy centre stage on Wednesday afternoon, 26 February 2014 when he delivers his fifth annual Budget Presentation 2014/15 – and expectations are high, particularly in the area of taxation.

Indeed, all and sundry have recommendations for Minster Gordhan on how he should do his job. Few cut him any slack on the ‘balancing trick’ that the job at hand, demands. Budget watchers know that Minister Gordhan’s style is never to surprise. So whilst South Africans enjoy the anticipation of the ‘big announcement’, history has shown that we can expect little in the vein of new tax policy.

Minister Gordhan has tried to prepare the ground leaking bits around Carbon Tax, e-tolls, Base Erosion and Profit Shifting (‘BEPS’, essentially, measures to counter-act tax avoidance through transfer pricing and international tax structuring), the Employment Tax Incentive (also referred to as the Youth Wage Subsidy), Special Economic Zone (SEZ’s), the next steps with the National Health Insurance (NHI), the future of the Mining Tax – all of which have elicited much debate, with no real certainty on how it will impact the average South African.

With so much focus on wasteful spending in the public sector, subdued economic growth projections and hence declining revenue projections and a rising tax to GDP ratio, South Africans will not take kindly to any tax hikes. In general, all South Africans concur that to question whether our tax policy and the tax system is aligned with the broader economic objectives of the country is entirely appropriate and well timed. Minister Gordhan has effectively left it to the Davis Committee to come up with recommendations to ensure that going forward, the tax policy framework supports economic growth, job creation, development and fiscal sustainability. No answers can be expected in the Budget speech 2014/15. 

The top 5 focus areas of the Davis Committee can be summarised broadly as follows:

  • overall tax base and the spread of the tax burden (an emotive issue in South Africa); 
  • the tax mix (that is, personal income tax, VAT, company tax, etc);
  • how the tax system promotes SMMEs (as an aside, a clear focus on the ‘small’ in ‘SMME’ is long, long overdue. Afterall, this is the sector that if supported appropriately, is capable of making a dent in our unemployment legacy.)system;
  • reviewing the corporate tax ; and 
  • simplifying tax laws.

Following Mark Shuttleworth’s recent victory in court, the State has one year to revise any South African Reserve Bank Regulations that are considered ‘unconstitutional’. Whilst there is no chance that Exchange Controls will be abolished, there is every indication that Minister Gordhan will take the opportunity that the Budget Speech presents to articulate the scrapping of Regulations that are still prohibitive and to announce Regulations that broadly permit the free flow of capital (with certain exceptions).

Minister Gordhan needs to restore confidence – not just for South Africans but for those rating agents who will pounce on any indication that our budget deficit will come in way off target. Leadership skills are indeed tested in time of strife.



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