Few surprises and even fewer tax breaks await tax payers when Finance Minister Pravin Gordhan delivers his budget next week. Efficient Group economist Dawie Roodt predicts one of the sectors which will feel some pain could be the motor industry. If government introduces its planned carbon emissions tax on new vehicles it could see prices of some gas guzzlers soar by up to 10 percent.
Motorists who love their multi-\terrain vehicles will be considerably more out of pocket if they go shopping for a new vehicle from March. The carbon tax will be levied as a new tax within the taxes on goods and services category of state revenue and is CO2 emissions based. Therefore the more emissions, the higher the tax.
For instance, an environmentally friendly Toyota Yaris and Golf 5 may actually be cheaper, due to no tax being levied combined with a downward adjustment to the previous import duty tariff. A Land Rover Freelander could set you back an additional 1.2%, an X5 could be 1.4% more expensive, a Nissan Navara 7.1% and an Isuzu KB300 Tdi 9.7%.
Roodt, who delivered his pre-budget prediction speech in Centurion on Thursday, is opposed to carbon tax being levied on new vehicles. Although the industry receives a substantial subsidy it will be a blow under current economic conditions. He believes it would be more effective as part of a fuel levy. "That would have meant the people who pay the most are the people who drive the most and that is fair," he says.
Motorists will also have to brace for a potential petrol price hike of 40 cents a liter. Roodt expects the fuel levy to be increased by 20c per liter and the Road Accident Fund levy to go up by another 20c per liter.
Companies should not expect much tax relief, but could see higher thresholds on turnover tax for SMME¡¯s and although individuals will be given some tax relief, Roodt estimates that these tax breaks won't exceed R3 billion, a much reduced figure from last year's R15 billion.
President Jacob Zuma all but confirmed the unlikelihood of major tax breaks during his State of the Nation Address on Thursday night when he announced a further R846 billion spend on public infrastructure. Social spending is also set to increase with social grants being extended to children between the ages of 15 and 18 years. Just before the address Roodt predicted that the bulk of government spending would be on social services.
Insofar as Eskom is concerned Roodt was unwilling to commit to any estimations, but he conceded it was unlikely that government would allocate much of the budget to the energy supplier. This isn't necessarily good news, because the less budget allocation Eskom receives, the more it is likely to receive in terms of tariff increase percentages.
Like Zuma in his State of the Nation address, Roodt is upbeat about the economy. There were indeed positive signs that South Africa was turning a corner and that markets would continue to pick up within the next few months.
"I am quite bullish about the equity market, especially industrials, financials - later in the year - and commodities. I expect equity markets to grow by 15 to 20%, but I would stay away from bonds. There is a lot of pressure on the international capital market, we have a large fiscal deficit and inflation is rising so bonds are not that attractive," says Roodt. He is also positive about property due to low interest rates and encouraged investors to look at foreign investment. "We expect the currency to weaken later in the year, so it would be good to buy into the foreign market now, while the Rand is relatively strong."
Roodt is in two minds about government introducing a so-called Tobin Tax on foreign investments, but he believes a moderate tax of 2% on all foreign investment could stabilise the volatile Rand. "If you levy tax on foreign investment you may deter some investors, but those who do invest won't be so likely to withdraw their money at every market whim."
Roodt was strongly outspoken against some other plans the Minister may have, "we all know the SABC is in deep trouble, but if government decides to allocate the broadcaster a part of personal income tax that would be a very stupid idea."
On the whole however, Roodt concluded that the fiscus was healthy under challenging circumstances and that the treasury was doing a good job of managing the country's finances.
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