Low growth; tax revenue down; no relief from bracket creep; a bloated public service wage bill; billions in unpaid VAT refunds set to depress tax revenue even further. Not a happy message for a Minister of Finance to bring in his inaugural Budget Speech, but this is what he was stuck with, and to his credit he didn’t try to sugar the pill. At least we were able to listen to a Minister who clearly knew what he was talking about; a refreshing change from the embarrassing platitudes that his predecessor visited upon us 12 months ago in a haze of ignorance.
This is the fiscal state of the nation. Within that unhappy context, Minister Mboweni made some interesting announcements. I refrain from repeating his growth target, because in recent years National Treasury’s predictions have been so far wrong that they no longer have any credibility. However, it is good to hear that billions in grossly overdue VAT refunds have been paid out, with billions more still to come. There seems at last to be a clear policy in place to accelerate refunds. Countless small and not so small businesses have struggled mightily, and many have gone to the wall while SARS, arrogantly and contrary to every tenet of its duties to the public, clung to vast sums that would otherwise have been available to generate business, jobs, and of course more taxes.
The investigative arms of SARS are to be strengthened a decision that can only be welcomed. We are already aware that the Large Business Centre, that highly effective unit in SARS that became a victim of its own success, is being resuscitated, along with other measures aimed at cleaning out the Moyane Augean stables.
The Minister made much of the bloated public sector wage bill, which must come down to tolerable levels. No doubt we wish him well as he enters this politically charged arena – after the election.
The individual tax tables have been left virtually unchanged. This might seem to be not much of a big deal, but does mean that we will be taxed on inflationary income increases. The corporate tax rates remain unchanged, as do the capital gains tax rates and exclusions. VAT remains at 15% with a promised increase in the number of zero rated foodstuffs to assist those at the lower end of the economic pyramid. The last two amendments affecting individuals are a change to the medical tax credit system to prevent double deductions of subscriptions where more than one taxpayer contributes to the medical scheme levies of a person (typically this occurs where children contribute towards the medical scheme subscriptions of their aged parents); and an increase in the fringe benefit housing allowance.
As for the business sector, all the corporate rates remain unchanged: 28% on companies and close corporations; 45% on trusts; dividends tax 20%; interest withholding tax 15%. In the past couple of years the doubtful debts provision has undergone important changes. As is commonly the case, the new section needs some tinkering, which will occur in the forthcoming Bills. This provision still uses IFRS as some sort of benchmark, which means that our tax legislation is affected by the decisions of a group of unelected, unaccountable persons who aren’t even South Africans.
Section 12J of the Income Tax Act was introduced in 2008 to encourage investment in the small and medium business sector. Since then it has undergone a number of amendments, all aimed at encouraging venture capital investments, and not all particularly effective. The most recent amendments, however, seem to have tipped the balance a bit too far, with the result that schemes have been devised where perhaps the emphasis has been too much on the immediate tax benefits and not on the professed aim of encouraging entrepreneurial daring. There is an old adage that you should be wary of tax saving schemes being sold off the shelf with tax as the driving intention rather than the underlying aim of the legislation. Older readers may recall with a shiver the notorious bloodstock, plantation and film schemes of the 1980s. It seems that in some quarters this has happened with section 12J, and we can expect further amendments to discourage this tendency.
So this has been a predictably uneventful Budget, without any drastic provisions that could have unhappy results at the polls for the ruling party. Perhaps we will find some stings in the amending Bills to be published, probably in about July.
Prof. Peter Surtees
Peter has a BCom and MCom (tax) from Rhodes. After having completed his articles Peter qualified as a CA (SA) in 1965 and was a partner in Leith Freake & Cade (now part of KPMG) until joining the staff of the Department of Accounting at Rhodes University, where he rose to the position of Professor and Head of Department and Deputy Dean of the Faculty of Commerce. He was subsequently appointed to the tax division of Deneys Reitz (now Norton Rose Fulbright). Peter retired from this position at the end of 2015 to focus on corporate tax consulting. He joined Caveat in 2018.