Manuel unlikely to gift personal taxpayers this year
As the 2008 budget speech draws near, most South Africans are wondering what finance minister Trevor Manuel has in store for them. To find out, FAnews Online attended a Deloitte presentation in which possible taxation changes were discussed. Billy Joubert
Scant chance for further personal tax relief
The first thing we should bear in mind is that South Africa is struggling with price inflation at the moment. This has been largely driven by consumer spending and Manuel will be at pains not to add fuel to the fire. A change in personal income tax rates is thus very unlikely. Joubert believes the top marginal rate of 40% will remain intact and that taxpayers will have to be satisfied with the usual adjustment to salary brackets. And to make sure consumers think twice before buying non-essential items, Manuel is sure to include the traditional increase to ‘sin’ taxes during his speech. You can expect to pay more for tobacco and alcohol. And further hikes in both the fuel and Road Accident Fund levy are on the cards too.
Relief will probably come from incentives to save. Manuel has repeatedly raised the tax exempt portion on interest and foreign dividends in recent years. At the moment taxpayers under the age of 65 benefit from R18 000 per annum, while those over 65 years can receive R26 000 of exempt income. Joubert points out that a married couple can already receive R52 000 per annum (or R4 333 per month) in tax free interest income.
Another tax which affects private taxpayers directly is VAT. If he so chooses, Manuel could tamper with VAT by raising the basic rate or introducing additional VAT levels. Joubert notes that such changes are unlikely. Creating additional VAT ratings is impractical, as the country has enough trouble handling the current system with only two scales (zero or 14%). And although Joubert says there is a case for upping the VAT rate there are complex social issues which will prevent this from happening. Arguments for an increase include that VAT acts as an effective tax on luxury goods – the poor are insulated as long as the zero rating is applied to the correct basket. It is interesting to note that the UK has a VAT rate of 17.5%.
Could companies get a 1% cut?
Deloitte does not expect a cut in the company tax rate. However, Joubert did indicate in his article “Tax predictions in upcoming budget” that a cut from the current 29% to 28% would be more likely than a change to personal income tax rates. The contribution from companies to total tax revenue has been on the rise in recent years, from 17% in 2002 to 23% in 2007. Of course this increase can be ascribed to the phenomenal growth in business and industry in the last five years.
Joubert believes an important aspect that must be dealt with in the 2009 tax year is the Secondary Tax on Companies (STC) issue. Corporate taxpayers are still waiting to find out how far government has progressed on Double Taxation Agreements (DTAs) so that the new withholding tax can finally be implemented. South Africa has yet to conclude such agreements with the UK, Ireland, Australia and a number of smaller countries (Cyprus, Oman and Sierra Leone).
Companies could also benefit from various incentives that will hopefully be presented by Manuel later this month. These include a Strategic Industrial Projects benefit and further announcements on the MIDP. Joubert also mentioned we might see inducements in the budget to encourage private sector companies to embark on alternate energy projects and activities to lower carbon emissions.
Death and taxes
FAnews Online would like to see a rebate to individual taxpayers for home renovations to combat electricity consumption. An incentive to install solar water heaters in private homes (for example) would go a long way to assist Eskom in managing the current power supply crisis. We would also welcome any moves to do away with inefficient and petty taxes to lower the compliance burden on small businesses.
This article is full of guesses and wishes. We won’t have to wait much longer for Manuel’s speech, when all will be revealed. We wish Trevor Manuel all the best – and certainly hope we get to see him again in 2009. Until then, FAnews Online leaves you with this often repeated phrase: “There’s nothing certain but death and taxes.”
Editor’s thoughts:
It looks like this year’s budget will offer little relief to private taxpayers. Although business might benefit from a small cut in the rate (from 29% to 28%) it is unlikely there will be major changes on that front either. What would you like Trevor Manuel to address in his budget speech this year? Add your comment at the end of this article, or send it to [email protected]
