Trevor Manuel’s budget held few surprises, writes Belinda Beresford
Forget the call to restore flogging and other old-fashioned punishments for crimes. Minister of Finance Trevor Manuel has a similar frontier penalty in mind for tax-dodgers – public shaming.
Where once South Africans could keep an eye on their friends, neighbours and enemies via the gossip column or the deaths and marriage announcements, now there arises the tantalising prospect of being able to check just who has been cheating on their taxes.
The government proposes publishing the names of convicted tax-dodgers in the Government Gazette and from there the names can be disseminated in the wider media.
Appeals to personal morality and civic responsibility have long since failed to persuade South Africans to pay their taxes. Instead the government is trying public shame and the use of peer pressure.
The knowledge that the person sitting next to you at dinner has directly contributed to your higher taxes by cheating may create a form of social pressure, quite apart from moral issues.
The government’s determination to right the inequalities of the past was demonstrated in the surprise announcement of a windfall tax on the future demutualisation of insurance giants Old Mutual and Sanlam.
Policyholders of these two organisations will be entitled to shares in the newly converted companies and will benefit in a number of ways, including getting dividend payments and benefiting from share price rises. Demutualisation will mean the new shareholders will have access to the free reserves – the excess of reserves over liabilities – of the two organisations.
The budget review says this decision is based on the fact that reserves have been built over time by generations of policyholders and with the benefit of favourable tax regimes for mutual companies.
Emphasising again there is no such thing as a free lunch, Manuel announced the government intends to apply a one-off tax to the new shareholders of the two organisations. The money is to be used to capitalise the Umsobomvu Fund, which will be used for job creation.
Tax experts said the budget contained no major surprises, apart from the windfall tax. Deloitte & Touche tax partner Billy Joubert described the demutualisation tax as an unexpected “curve ball”, but said otherwise the budget had demonstrated “there seems to be an ongoing commitment to reducing the tax burden”.
Exchange controls were also relaxed further for both individuals and companies.
There was no increase in value-added tax, although the government will restrict some VAT export tax incentives which were being abused. As expected, “taxes on indulgences”, the so-called sin taxes on cigarettes, alcohol and the like, went up.
There were further cuts in the use of potential tax-reducing measures such as medical-aid schemes and car allowances as part of the government’s strategy to remove tax planning as an incentive in the structuring of salary packages.
The budget also saw the announcement of changes to the taxation faced by trusts, which commentators said could particularly hit companies using trading trusts.
Although a rise in the tax rate faced by pension funds on rental and interest income had been expected, the hike from 17% to 25% was above most expectations.
Absa pointed out that the increased tax on retirement funds could be counter-productive in reducing domestic savings. Ernst & Young principal tax consultant Sean Kruger said the measure was not surprising, given the state’s intention to tax retirement fund income as it arises, rather than when it is paid out.
As far as state pensions go, Minister of Welfare and Population Development Geraldine Fraser-Moleketi announced a 4,3% increase in social security grants following the budget. Old-age, disability and care-dependency grants will rise R20 to R490, while war veterans’ grants will increase by the same amount to R508.
Foster-care grants will go up by R10 to R350, while from the beginning of April, carers of children under seven will receive R100 a month per child, if they pass the means test.