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Medium Term Budget Review – 25 October 2012

Indeed…trying times

Message from Nazrien Kader, Deloitte Taxation Services Leader

Presenting his 4th Medium Term Budget Policy Statement to Parliament, Minister of  Finance Pravin Gordhan insisted that we were not in recession and certainly not in “terminal crisis” - this in the context of slowing global economic growth, high levels of uncertainty on growth prospects in Africa and the BRIC region and a deteriorating domestic environment.

Minister Gordhan did well to talk up the prospects for the South African economy, taking every opportunity to remind citizens that we may be facing formidable challenges but these were not insurmountable.

As expected, he stoically stuck to fiscal and tax policy in the face of concerns about growth – taking a few jibes at rating agents in the process  –  he revised his projected tax collections downwards by R5 billion to R831 billion.  He did note a contingency reserve of R4 billion set aside for unforeseen expenditure demonstrating a conservative stance to the budget.

He did indeed walk the ‘fiscal tightrope’ trying hard to balance the need for additional stimulus for the domestic economy against the need to curb spending to reduce the budget deficit.

Notwithstanding an acknowledgement that the allocation to infrastructure spend in the budget was not sufficient, there was no fanfare regarding tax benefits and incentives – a strong case may be made in favour of a government incentive to boost investment in domestic infrastructure. As expected there were no major tax proposals hinting at a change in tax policy. Minister Gordhan did reiterate that there were proposals on the cards to promote household savings, reform retirement landscape and broaden social security – piquing interest in the 2013/14 Budget to be announced in February next year where further detail is expected.

There is no expectation that current tax rates will change: currently the marginal tax rate for individuals is 40% (at a threshold of R617 000). The corporate tax rate is 28% and it is likely that specific taxpayers across industries that have effective tax rates of lower than 28% will be targeted for increased tax collections through integrated tax audits. The rate of VAT is expected to remain unchanged at 14%.

Whilst Minister Gordhan made an effort to comment on the labour unrest in South Africa and the impact on foreign direct investment that South Africa so desperately needs – it was clear – the fiscus sees corrective action as a collective responsibility of the state, business, workers and citizens.


Nazrien Kader
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Service Line Leader: Taxation Services
011 209 6030
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