Budget: no tax breaks likely

2009-02-10 00:00

It is unlikely that Finance Minister Trevor Manuel will give taxpayers meaningful tax relief when he delivers the national Budget this afternoon.

This is the view of a number of experts, who believe taxpayers can expect Manuel to deal only with the “fiscal drag” on personal income tax to provide relief for erosion by inflation.

KZN-based tax expert Professor Dilip Garach warned that significant tax breaks are not expected in this budget.

He agreed that adjustments to personal tax rates to counteract the effects of “bracket-creep” should be expected.

“Manuel will not be able to put cash in the pockets of taxpayers by offering tax relief. At this time taxpayers are burdened with debt and any form of tax relief will be welcomed.”

Christopher Clarke, a director at Deloitte, said Manuel has “very little leeway” to reduce personal tax rates.

“I see the marginal rate remaining at 40% and little if any increase in the marginal threshold of R490 000. A reduction in the taxes paid at the lower-income levels may well raise the tax threshold from the current R46 000 to say … R50 000,” Clark said.

Local tax expert Leigh Bainbridge said that with the increasing likelihood of layoffs, the R30 000 tax-free portion of retrenchment payments is overdue for an increase.

“For many people the retrenchment payment is critical to help tide them over until they find a new job, and tax on the retrenchment payment in excess of R30 000 takes away from them at a time they can least afford it.

"I believe an increase in the tax-free portion to R100 000 would not be unreasonable,” Clark added.

BUSINESSES should not look to Finance Minister Trevor Manuel for any significant relief — particularly with regard to taxes — when he delivers his national Budget speech today.

This is the view of several tax analysts and economists.

A budget deficit is inevitable, the economy continues to weaken and many analysts believe that the SA Revenue Service (SARS) will struggle to meet revenue targets.

Many businesses — particularly in sectors hardest hit by the local slowdown and the international meltdown — are hoping for some sort of stimulus package.

Some economists believe the government’s counter-cyclical role in the economy will come to the fore, with Manuel slanting toward an aggressive spending agenda, helping to support the local economy.

“The government will continue with its medium-term expenditure programmes announced in September last year, which will result in a budgeted deficit,” KZN-based tax expert Professor Dilip Garach told The Witness.

The government and state-owned entities are already in the midst of major infrastructure spending.

However, Lullu Krugel, manager at KPMG Financial Risk Management, believes certain aspects of the infrastructure spending drive will not be boosted significantly.

With regard to the corporate tax environment, fairly significant changes have been announced in recent years and experts believe no major changes are likely today.

Christopher Clark, a director at Deloitte, said these changes have brought local corporate tax rates much closer to those of South Africa’s major trading partners.

André Roux, head of fixed income at Investec Asset Management, said this is likely to be Manuel’s toughest budget.

“As far as the revenue … is concerned, there is no way Manuel is going to achieve the targets set out in September. He will be lucky if he maintains growth in company tax at some positive level, while the performance of VAT in the five-to-six percent range will probably be no better than this year,” Roux said.

“Major contributors to revenue are company taxes and VAT and these are expected to fall far short of targets,” Garach added.

Paul Gering, a tax director at Durban-based PKF Chartered Accountants and Business Advisers, believes a new tax amnesty should be announced, because when the economy is in decline, companies facing large arrears in tax liabilities could face liquidation.

Another local firm, Shepstone & Wylie Attorneys, believes the government may provide further tax relief to foreign investors.

kavith@witness.co.za

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