Mazars Budget predictions 2011

Johan Troskie, National Tax Director:
· With the economy still not firing on all cylinders, government is likely to think creatively about ways of stimulating consumer spending to help it get back on its feet.

· Further hidden taxes, such as those introduced last year, could also be announced. The vital issue of unemployment is likely to be addressed in the form of more tax concessions for the corporate sector, especially manufacturing, to create jobs and more concessions for learnerships.

· Transfer pricing should also be in the spotlight. During 2010, changes to the transfer pricing Section 31 of the Income Tax Act were made and there is the suggestion that more changes will occur. This is in line with global tax trends where governments are becoming stricter in respect of offshore transfer pricing transactions to ensure that each fiscus gets its piece of the pie. There will be a knock-on effect for local subsidiaries of foreign holding companies and vice versa.

· There is also an increase in agreements between revenue authorities of different countries to share information about taxpayers who operate in more than one tax jurisdiction. This could lead to global tax audits being conducted in the future where a group of companies operating in various jurisdictions are audited by the revenue authorities at the same time resulting in the exchange of relevant information in real time.

· While there was some speculation and even debate within the ANC to consider a so-called capital inflow tax, mainly to try to curb the stubbornly strong rand, Mazars doesn’t think this is under consideration for this budget, no matter how desirable it may seem to some.

Dirk Kotze, Mazars tax partner for the Eastern Cape:

· The Minister may provide some details as to how it will raise revenue to fund the proposed National Health Insurance. It might eliminate, for example, the current deduction for medical aid contributions and revert to the 7.5% limit for all medical costs.

· A simple and cash-flow effective way of increasing tax revenues is to increase VAT by 1% but this would be a risk to the Government as it would affect the greater part of the population whereas targeting more specific areas limits the number of taxpayers affected.

· During the 2010 budget a passing comment was made that the potential double taxation created by Estate Duty and Capital Gains Tax on death would be re-considered. No further comments followed from Treasury and none of the subsequent tax legislative changes contained provisions in this regard.

· In the 2010, Budget the Minister admitted that Estate Duty raises limited tax revenues, and is expensive and difficult to administer. It may be possible for SARS to obtain a better fiscal contribution percentage by increasing the effective CGT rate on death from the current maximum 10% to say 20% or 25% and abolishing Estate Duty completely.

· Although the gross tax revenues may reduce, the opportunity exists for SARS resources to be redeployed to areas where the net contribution to the fiscus is higher. More should be revealed in this year’s budget and subsequent legislation.

· The ongoing recession has forced many property developers to lease some of their residential units to generate cash flow to pay the holding costs of the property. Under current VAT legislation, this triggers a disposal for VAT purposes resulting in a negative cash flow position for the developer. Despite the 2010 budget mentioning that this will be addressed so that the temporary letting during distressed times does not trigger VAT no changes were made to address this issue. We hope that this is addressed as a matter of urgency this year.