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Gordhan targets the rich in 2012 budget

Nickolaus Bauer, Faranaaz Parker

Finance Minister Pravin Gordhan has introduced new tax measures as well as plans to fund President Jacob Zuma's infrastructure dreams.

South Africa’s rich will bear the brunt of new tax measures introduced in Finance Minister Pravin Gordhan’s 2012 budget speech.

Delivering his speech in Parliament on Wednesday, Gordhan unveiled increases to the capital gains tax rate; along with the introduction of a withholding dividends tax (WDT) that will see increased revenue into the fiscus.

As from March 1 2012 individuals and special trusts will be paying 33.3% CGT, up from 25%.

Companies and other trusts will have their CGT rate increased to 66.6% from 50%.

Gordhan described the measures taken to increase CGT as an attempt to “reduce the scope for tax arbitrage” and further “broaden the tax base”.

The WTD will be introduced as from April 1 2012 and results in individuals paying 15% on dividends earned from shares in listed and unlisted companies.

“This will align South Africa’s tax dividends with that in most other countries,” Gordhan said of WTD.

Other new tax measures aimed at higher income earners sees an ad valorem excise duties being introduced to small airplanes and helicopters (7%) as well as motorboats and sailboats (10%) longer than 10 metres.

Sin taxes were also not exempt from increases with duties on tobacco products, wine, spirits and beer all being hiked between 8% to 20% in the hope of adding an additional 8% to the fiscus.

The increases in duties on tobacco products will be between 5% and 8% this year. In respect of beer and spirits, an increased benchmark tax burden is proposed, to be phased in over two years.

The excise on spirits will increase by 20% to R36 for a 750 ml bottle this year, while the tax on beer goes up by 10% to R1.01 for a 340 ml can and wine will contribute 8% more to the fiscus.

Further adding to government coffers will be an increase in the fuel levy from April 4.

Both the price of petrol and diesel will jump by 20 cents a litre and an increase in the Road Accident Fund levy of eight cents a litre will further exacerbate the price increase.

A further service cost increase will see the levy on electricity generated from non-renewable sources will spike by 1c per kilowatt hour on the same date.

Fleecing the rich
The introduction of the WDT will see the abolition of secondary tax on companies (STC).

Pension funds are also safeguarded from this new tax, as they will continue to receive dividends tax-free.

It is estimated that up to R2-billion will be garnered from the new form of CGT, while a massive R5.5-billion in th WTD will come into the fiscus for the 2012/13 revenue period.

However this will be offset for now by a drop of R7.4-billion in revenue enjoyed through STC.

But instead of this being interpreted an overall drop in the fiscus, it is intended to shift the tax burden from small businesses to wealthy private individuals.

By doing so, the government hopes to facilitate increased spending by small business on development and job creation.

In essence South Africa’s wealthy will feel the pinch as the South African government attempts to swell its coffers and drive job creation through various projects.

“Growing inequalities in income and wealth have undermined economic growth and social well-being. The difficult task of moderating and reversing inequality requires active government intervention. Unregulated capitalism is clearly in crisis,” said Gordhan.

As part of this move, the 2012 budget also introduced the personal income tax relief to the tune of R9.5-billion.

Infrastructure Development Key
One of the central priorities of this year’s budget was to provide details on the massive infrastructure development unveiled by President Jacob Zuma in his State Of The Nation address.

Gordhan referred to the country’s public-sector infrastructure programme as one of the “levers of change” that would activate public and private sector capabilities.

Gordhan said treasury envisioned that the state’s ambitious infrastructure projects would be made possible through a mix of funding models.

For example, while the fiscus would meet the cost of public-service facilities like schools, courtrooms, hospitals and rural roads, public entities like Eskom and Transnet would finance their investments from internally generated surpluses and borrowing from the capital market.

“This means they have to generate sufficient revenue from tariffs and charges to repay debt over time, and cover operating and maintenance costs,” he said.

Private sector investment would also play a substantial role and the Development Bank of Southern Africa would help raise finance partnered with financial institutions, foreign investors and other investment funds, while the Industrial Development Corporation would invest directly in income-generating projects in partnership with other investors.

The budget review lists 43 major infrastructure projects, adding up to R3.2-trillion in expenditure.

Of the R845-billion in budgeted infrastructure plans, just under R300-billion is in the energy sector and R262-billion is in the transport and logistics sector.

“No project will be short of funding,” he said.

Capacity concerns
There are lingering concerns about the state’s ability to spend the money that has been earmarked for infrastructure development, and for good reason. In 2010/2011, only 68% of the funds set aside for infrastructure was spent.

In his speech, Gordhan said treasury is aware of weaknesses in the state’s infrastructure capacity and admitted that all spheres of government had to do better.

He promised to step up the quality of planning, costing and project management, so that infrastructure is delivered on time and on budget in future and set out harsh penalties for state organs that do not perform.

“Government departments and municipalities that do not spend, underspend or misspend their allocated funding will be at risk of losing allocations.

The relevant officials will also be held liable for such misdemeanors,” he said.

He went to lengths to list the measures in place to improve infrastructure project implementation and build management capacity.

These include:

  • Project planning and management capacity within state-owned entities, development finance institutions and the private sector;

  • A new cities support programme, which will assist eight metropolitan authorities to improve spatial planning, public transport systems and utilities management;

  • The new Municipal Infrastructure Support Agency, which will assist rural municipalities that lack planning capacity;

  • The neighbourhood development plan, which will provide technical assistance to municipalities;

  • The extension of the infrastructure skills development grant provided to graduate interns in engineering and spatial planning to 43 municipalities.

“Special attention will be given to the procurement processes for major infrastructure projects, to ensure both value for money and development of local suppliers and support industries,” he said.

He said that the key consideration for treasury is the impact and economic viability of the infrastructure investments.

In a press briefing just prior to the release of the budget, Gordhan owned up to the skepticism around government’s ability to deliver on its promises saying that suggestions that government “talks a lot but delivers a little” was “fair criticism”.

However, he said that over the next few years government would be putting in place measures to strengthen its ability to implement its plans.

Finance minister Pravin Gordhan faces a stern test when he delivers his 2012 budget. View our special report

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