Commentary on Tax Proposals announced in the 2013/14 Budget Speech
With so much nervousness around whether Minister Gordhan would announce any significant increases in tax rates, it is fair to say that the Budget 2013/14 presentation will probably go down in history as the most ‘uneventful’.
Ahead of the budget presentation all indications were that he will come clean on:
- The funding mechanism for the National Health Insurance plan: instead he suggested that phase 1 would not place any demands on the fiscus, however a tax increase will be necessary in the longer term
- Whether personal income taxes may be increased to fund the infrastructure programme: instead he hinted that tax avoidance and the use of trusts to shift revenues to low tax jurisdictions will get attention. He did however give R7 billion in tax relief to individuals by way of an adjustment to tax brackets to account for inflation (fiscal drag) and an increase in rebates and the tax threshold
- The social security reform and retirement benefits: instead he noted that consultative process will start on tax-preferred savings and investment accounts which Government expects to introduce in 2015 and he committed that by 2016 all citizens over a certain age will be eligible for an ‘old age pension’
Whilst company tax rates remained static at 28%, what he did confirm is that carbon taxes will be a reality in 2015 at a rate of R120 per ton of Co2 equivalent. The shipping industry got clarity on the proposed tonnage tax – which will be abandoned and replaced with an outright exemption for shipping income. A tax incentive aimed at sharing the costs of employing 1st time work-seekers which is to be tabled at Parliament in due course, was welcomed.
Tax avoidance and tax base broadening measures occupied centre stage with Minister Gordhan specifically announcing the onslaught on trusts – those used in employment share schemes to convert taxable share-based remuneration into tax free income and those used to shift income from South Africa to low tax jurisdictions.
Surprisingly there was little by way of reducing the administrative burden on taxpayers despite South Africa’s recent ranking by a World Bank Survey – 39 out of 185 countries in the world for ease of doing business and 32 out of 185 countries on the ease of paying tax apart from an announcement of a single tax registration for all taxes.
Even though international perception is that South Africa’s competitiveness is declining, there were no steps taken to reiterate South Africa’s standing as an ‘investor friendly’ destination.
The overriding themes appeared to be the 3C’s: Compliance, Collections, and Co-operation.
All in all, Min Gordhan’s 4th budget presentation lacked any surprises – served more as a warning of things to come – sadly, he disappointed with his lack of detail on ‘how’ he will achieve the ambitious expansionary mandate set by President Zuma.