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The Minister has instead chosen to borrow cautiously to cover the shortfall, while tightening up government austerity measures - including curbing increases for MPs - and driving greater value from existing public expenditure. “It would have been an enormous mistake to reduce spending in the current climate, and I certainly agree with Gordhan’s strategy to borrow whilst waiting for the economy to recover.”
However, this strategy implies that government will increase its focus on enforcement with the introduction of the new Tax Administration Bill, and hence the Minister’s warning that sophisticated tax loopholes will be plugged soon and that additional risk areas such as cross-border transactions will be receiving attention.
Gordhan also announced a year long amnesty period, starting from 1 November, for taxpayers to get their affairs in order. “Although this may not be a popular concept amongst most law-abiding tax payers, it’s important for South Africa to broaden its tax base – which, in time, should spread the burden somewhat, while affording non-compliant taxpayer a means to become compliant.”
Personal tax
As has become the norm over the years, individuals received R6.5 billion in tax relief (although this must be viewed in light of the fact that almost as much will be collected through other forms of taxation) and brackets were adjusted with the greatest portion of relief to the lower income individuals.
Increased focus on stepping up revenue collections
As SARS steps up enforcement, Retief says he believes that those who fail lifestyle-based testing - “whose assets increase out of step with declared earnings” – will begin to fall foul of the tax man as third party data begins to flag possible tax evaders. “Over the next three years we will see an increase in information on certain luxury purchases – property, boats, sports cars – being fed through to SARS. Our members should make their clients aware of an expected increase in physical audits of high net worth individuals.”
Interestingly, SARS has also announced it’ll be focusing on high roller gamblers in particular, with a possible amendment to law that requires gamblers to declare the amounts they gamble, as well as their winnings. “In addition to catching out tax evaders, this move should be seen in the context of government efforts to clamp down on money laundering,” says Retief. The clampdown will also include a tightening of laws to stop unlicensed online gambling.
The rise in the fuel price by 25.5c a litre is likely to be felt throughout the economy, but will put pressure in particular on those planning to buy new cars. In keeping with the trend towards more environmental taxes, “From 1 September, a carbon emission tax will be applied to passenger vehicles, in line with their fuel efficiency: the bigger the gas guzzler, the larger the tax,” he says, commenting on its potential negative effect on the motor industry in the short term.
Added to this, people will have to take into account the fact that from 1 March, the ‘deemed kilometres’ provision will fall away and that in future, individuals will have to maintain a physical logbook in order to claim for business travel. In addition, the taxable portion of travel allowances has been raised from 60% to 80%, which will result in less take home pay from March.
The Minister also announced that government is examining the structuring of salary packages with specific focus on company cars. Gordhan said he’s aware of this fringe benefit being abused and that changes would be made shortly to eliminate this possibility.
Also announced was a pending review of Capital Gains Tax and Estate Tax as they coincide when someone dies. “At present, the law sometimes results in a double taxation position while the wealthier individuals setup structures, such as trusts, in order to dodge this tax,” says Retief. “It’s interesting that mention was made of the cost of collection and the lack of efficiency in collecting these taxes, which might make a case for government to scrap estate duty completely.”
The new tax year will also see an increased focus on transfer pricing and cross-border mismatches, which is significant with regards international tax and foreign trade.
Corporate taxation
Although no increase was announced in company tax, the Minister indicated government’s intention to closely scrutinise cash-based businesses. “Well-known to be a potentially high risk when it comes to evading Vat, businesses such as restaurants, small retailers, plumbers and so on, need to ensure they have their affairs in order as the likelihood of their being audited is now even greater than ever before.”
The Budget proposal makes provision for some other matters, such as alternative documentation for Vat purposes when the supplies are less than R50.
Retief said he was disappointed that no reference was made to incorporating provisions for electronic documentation for both the issuing of Tax Invoices and the retention of documentation.
Transfer pricing
On the subject of transfer pricing – whether South Africa currently gets its fair share of tax on cross-border transactions – the Minister indicated government’s intention to clarify current guidelines, in essence, implementing the legal documentary requirement to prove the value of the arms-length transaction. “This comes as good news to tax consultants for whom it removes much guesswork when it comes to drawing up a tax policy for clients, and could help limit the costs of compliance,” says Retief.
In the past, the amount of uncertainty required expensive, regular revisions of the policy. The changes announced will undoubtedly improve the cost and certainty of what the document should be. “This will in turn have the effect of encouraging trade as companies have greater certainty regarding the tax implications of cross-border trade.”
In a similar vein, government is to provide relief in exchange control regulations pertaining to companies that make their headquarters in South Africa as a gateway to the rest of the continent. “By removing the existing obstacles to trade, it will certainly encourage foreign companies to invest in South Africa and make their headquarters here.”
Procurement
Lastly, of great importance to SAIPA members is the fact that government is reviewing is procurement and tender procedures. Government has found evidence of much corruption and abuse in these processes, referring especially to ‘fronting’ companies whose owners win tenders through inappropriate means, and then are found to be dodging taxes. “Government has indicated its intention to use third party information in a bid to trap fraudsters and improve its tax compliancy on tender grants moving forward.”
In general, members should be aware of government’s increased focus on efforts to ensure it receives all revenue collections that are due to it. “SAIPA members should do their best to ensure that their clients conduct their affairs with this in mind, warning them of the potential consequences for anything less than doing business by the book,” concludes Retief.
