/ 12 February 2010

Budget likely to present challenges for govt

The 2010 national budget, the first to be tabled by Finance Minister Pravin Gordhan, is likely to present a number of challenges for the government.

It would be one of the most difficult to balance because of the economic downturn, public-sector borrowing at 12% of GDP, and expectations of delivery on social security promises, Absa’s head of group tax, Etienne Louw, said in a statement on Friday.

With an estimated shortfall of R70-billion in revenues collected during the 2009/10 year, Louw expected the National Treasury to look for new ways to boost government coffers and control expenditure.

“The minister may announce changes that may impact on dividend funds, as this could provide additional revenue,” he said.

“The National Treasury has been investigating dividend funds, and the Financial Services Board gave an earlier warning that there may be changes to tax collection in this area.”

Louw said the National Treasury was reviewing the “four fund approach” applicable to life companies, which could affect the taxation of long-term insurers.

“We don’t expect a detailed announcement this week, but National Treasury may indicate that it is investigating the situation,” he said.

Any budgetary relief to cater for the impact of inflation would probably benefit lower income earners, especially those in the bracket below R132 000.

Louw said the tax threshold of R54 000 a year was likely to rise to cater for the impact of inflation, while the top marginal tax rate was likely to remain at 40%.

“A small percentage of those registered for personal income tax already carry much of the personal tax burden.”

He said that in the light of increasing electricity prices, there might not be much more room to squeeze the existing tax base much further.

It was unlikely that any new taxes would be announced because of the administration costs involved and the increased burden on existing taxpayers.

Louw did, however, expect the minister to provide more guidelines on how a new carbon tax, announced last year, would affect taxpayers.

New provisions which come into effect at the beginning of March and require taxpayers with travel allowances to keep detailed log books would affect a large number of taxpayers in the next tax year.

“These changes may offset any relief they get from a personal income-tax perspective,” Louw said.

Secondary tax on companies
Although it was previously indicated that the date of implementation of a new withholding tax on dividends to replace secondary tax on companies (STC) was to be the end of 2010, Louw believed it was more likely to be next year or even the following year.

“Under the current STC system, government is able to collect more revenue than it will be able to under the new regime, so it’s unlikely to introduce the changes at a time when it needs to boost revenue,” he said.

“In addition, negotiations around and ratification of double tax agreements with some nations have not yet been completed.”

The government might also seek to make South Africa a more favourable jurisdiction for setting up a holding company to stimulate investments in South Africa, Louw said.

“At the moment, there is leakage for companies doing business into Africa.

“Government could certainly introduce changes to make it more attractive to invest on the continent.”

Announcements in respect of group taxation (to provide further relief to a group of companies), as well as VAT relief in respect of Islamic Banking products, might also feature in the budget.

“Absa does not expect any changes to be made to the company tax rate or to the VAT rate in Wednesday’s announcement, while sin taxes such as those imposed on cigarettes and liquor are likely to increase above inflation,” Louw said. — Sapa