Budget likely to present challenges for Gordhan

2010-02-13 09:45

THE 2010/11 national budget, the first to be tabled by Finance

Minister Pravin Gordhan, is likely to present a number of challenges for the


Gordhan is expected to present the national budget to the House of

Assembly on Wednesday next week.

Absa’s head of group tax Etienne Louw said that the economic downturn, public sector borrowing at 12% of GDP, and

expectations of delivery on social security promises will make it one of the

most difficult to balance.

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 impact on the taxation of

long-term insurers.

“We don’t expect a detailed announcement this week, but National

Treasury may indicate that they are 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 margin 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 light of increasing electricity prices, there might

not be room to squeeze the existing tax base any further.

It was unlikely that any new taxes would be announced because of

the administration costs involved and the increased burden on existing


Louw expects 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 logbooks 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.

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 deferred to next year or even the year after that.

“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.”

He said the government was likely to introduce more incentives

aimed at making South Africa attractive to investors.

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 the announcement, while sin taxes such as those

imposed on cigarettes and liquor are likely to increase above inflation,” Louw


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