/ 27 October 2009

Treasury eases exchange controls

Finance Minister Pravin Gordhan eased exchange controls on Tuesday in an effort to stimulate investment in South Africa’s flagging economy.

In his medium-term budget policy statement (MTBPS), tabled in Parliament, he says the move is aimed at reducing red tape and the cost of doing business.

Foreign capital allowances are to rise significantly, while the amount companies can invest overseas will increase tenfold.

According to the document, proposed reforms include ”increasing the current R50-million limit for company applications to undertake outward investment to R500 million”.

Further, it says foreign capital allowances for individuals will be increased from R2-million to R4-million, and the single discretionary allowance from R500 000 to R750 000.

On the down side, the MTBPS reveals that tax revenues for the current financial year are expected to be more than R70-billion down on the February forecast.

It says the decline is mainly due to lower-than-expected corporate and value-added tax returns.

Tax revenue is expected to recover over the medium term as the economy picks up.

According to the document, gross tax revenue for the current financial year will be R589-billion.

While GDP is expected to decline by 1,9% in 2009, there are signs the economy is now recovering.

Positive GDP growth is anticipated in the fourth quarter of this year, with growth of about 1,5 % projected for 2010, reaching 3,2 p% in 2012.

Government plans to save R27-billion over the next three years by cutting wasteful spending.

Among the priorities in the MTBPS is urgent job creation.

Government is considering establishing a fund to support business, aimed at increasing employment.

The fund will be made up largely of existing spending programmes and tax breaks, with clear, measurable job-creation targets.

The MTBPS says creating jobs, particularly among millions of relatively unskilled workers, remains the greatest economic challenge, and all policy choices must be informed by the need to create more jobs. — Sapa