Reaction to tax cuts in Finance Minister Trevor Manuel’s annual Budget speech has been favourable.
”It all sounds nice to me,” Efficient Group chief economist Dawie Roodt said.
”It is more or less what I expected,” he added.
The general view is that there were no real surprises in Manuel’s 2004/05 Budget, with modest relief for taxpayers, increased social spending, higher ”sin taxes” and fuel levies.
Lower to middle-income earners will be the main beneficiaries of R4-billion in personal income tax relief — 60% of which goes to workers earning less than R150 000 a year.
”The focus is on expenditure,” StanLib economist Kevin Lings pointed out. ”There is very modest tax relief.”
Since South Africans were already enjoying the benefits of low interest rates and low inflation, more tax cuts were not a necessity.
Ernst & Young transformation specialist Kabelo Malapela welcomed the Budget’s provision for broad-based tax-free share transfers to employees, a moved aimed at black economic empowerment (BEE).
”This is very positive. It means shares given by a company to employees will not be counted as income. It will improve productivity and transformation. It will also contribute to BEE,” she said.
Ian MacKenzie, head of corporate tax at Webber Wentzel Bowens, agreed, adding that a slowdown in personal tax relief was to be expected under current economic conditions.
Commenting on BEE he warned that there was still not enough detail.
”I hope there won’t be unrealistic restrictions that will in turn create barriers for BEE. The devil is in the details,” he said.
While individuals would see little of the personal tax cut of R4-billion, he said it amounted to a good ”kickback into the economy”, although he conceded that a 10 cents a litre increase in the fuel levy and another five cents a litre for the Road Accident Fund would take out of the wallet everything Manuel put back.
”I am always a bit puzzled by this consistent increase in the fuel levy because of the inflationary impact it has,” MacKenzie said.
”It is a good way to collect tax, but I think they are going a bit overboard with it.”
Fuel price increases not only hit motorists and commuters but also increase the cost of transport of all goods and foodstuffs.
Manuel expects the fuel levy to earn him R909-million this coming year.
MacKenzie expressed surprise that Manuel made no mention of tax on retirement funds.
”Reform has been promised for many years but every year it keeps being left off the agenda.”
Ernst & Young’s David Clegg agreed, musing that he was ”wondering what is happening there”.
Keith Veitch, director of foreign exchange at Deloitte, said Manuel had made a number of changes that addressed the concerns of corporate South Africa.
Although foreign exchange control was not abolished the changes could encourage more foreign direct investment. — Sapa