What to expect in the Budget 2013
There seems to be an emerging consensus among Budget watchers that finance minister Pravin Gordhan will announce tax increases – but not yet.
The dangers of announcing tax increases at a time when the economy is gassed out seems obvious, but Gordhan has a lot of hungry departmental mouths to feed, so the pressure to tax more is ever-present. Only this time he will have to show restraint. South Africa’s investment rating is slipping, and labour relations are the worst they have been in years, so any further lunge to the populist left would be disastrous.
PriceWaterhouse Coopers (PWC) has made a few Budget predictions that make for dismal reading if you are in the higher income tax brackets. It says corporate taxes are likely to remain unchanged at 28%, while the maximum personal income tax rate could nudge up to 42% which, says PWC, could raise an additional R6 billion in revenue. There is also a chance that a "super-tax" of 45% could be introduced on those earning in excess of R1 million a year, which could raise a further R6 billion a year.
The gambling tax that of 1% of gross gambling revenues was announced in the 2012 budget was supposed to come into force in April this year, but this could now be delayed, according to Finweek.
Expect further updates on retirement reform, possibly scrapping the proposed ceilings on deductible contributions that were proposed last year. In the last Budget it was proposed that the tax treatment of retirement funds would be standardised and ceilings on deductible contributions of R250,000 for those under 45 and R300,000 for the over 45s would be implemented.
For all the talk about raising mining taxes, this is a too-hot-to-handle issue that will likely be abandoned for the moment, particularly after Randgold Resources announced it would no longer invest in SA due to lack of policy consistency and ministerial aloofness, and after Anglo Platinum said it would drastically scale back its Rustenburg operations. PWC says the issue of mining taxes will in all probability be reviewed by National Treasury.
Business Day reports that mining companies contributed R25.8 billion to the fiscus in 2011, which represented 20% of the total corporate income tax paid. On top of this, mining companies forked out another R6 billion in royalties to government. The ANC has proposed a mining resource rent tax of 50%, when a company is making a 15% return, and a 1% royalty flat rate on sales. A similar scheme was mooted – and shot down – in Australia, after mining companies loudly protested.
PWC also believes a review of "hybrid and excessive debt" is on the cards. The intention here is to stop companies making excessive use of debt when investing in South Africa, so as to encourage stronger equity flows into the country. For example, a company building a new factory for R200 million may invest R40 million in equity and borrow the rest from local banks, which has considerable tax benefits for the investing company. Government wants to increase the equity component of such investments. By the same token, it is expected to announce further investment incentives to consolidate South Africa’s status as the investment gateway to Africa.
As is customary in each Budget, attempts will be made to shut down tax avoidance loopholes, particularly in the area of transfer pricing and use of excessive debt.