Manuel could hike tax rate for individuals

Sanchia Temkin

INDIVIDUAL taxpayers are likely to be targeted for increases when Finance Minister Trevor Manuel announces his budget, tax analysts speculated yesterday.

The South African Revenue Service (SARS) is expected to concentrate its efforts on sectors which generate the most tax revenue in the light of the market turmoil, said Ernie Lai King, head of Deneys Reitz Tax Services.

“The most obvious thing for the government to do is increase personal tax rates, especially those rates for higher income earners,” Lai King said.

However, the difficulty is that this would reverse the trend of prior budgets, he said.

“More probable is less relief will be given on fiscal drag but we do not rule out an increase in personal taxes for the so-called ‘wealthy’.”

Lai King said that this would be an unwise move seeing that it was an election year.

David Clegg, a tax director at Ernst & Young, said that even before the meltdown in the financial markets it was apparent that the days of over-recoveries on the revenue side of the budget were numbered.

“This was because the general drive to bring all South Africans into the tax system, as well as the search for ‘low hanging fruit’ (areas of the tax law which had not been vigorously enforced in the past) had largely run its course,” Clegg said.

He said a meaningful cut in expenditure was extremely unlikely, partly because the country desperately needed to spend the medium term budgeted amounts on infrastructure, health, safety and security, education and welfare, and partly because this was an election year.

Clegg said that if expenditures were not to be cut, individual income tax had to be the target.

“This is because the corporate tax rate is largely tied to competitive international tax rates and until they go up, it would be inward investment suicide to increase them unilaterally.”

Further, value-added tax (VAT) was the Congress of South African Trade Unions’ “ sacred cow” and the standard rate (14%) was already high enough, so that was unlikely to move. “Which leaves personal tax, which at 40% maximum, is a politically acceptable target for an increase,” Clegg said.

Kemp Munnick, a tax director at accounting firm BDO Spencer Steward, said the government had an obligation in this budget to introduce tax incentives — including tax breaks for up to three years — to companies employing expatriates, on condition the company invests between 10% and 20% of the tax break on up-skilling local talent using those expatriates.

However, Munnick recommended that this should be limited to companies operating in key strategic sectors such as power generation (Eskom) and transport (Gautrain). He believed this would serve the government’s agenda of supporting the upliftment of skills in SA and at the same time to secure jobs.

“The alternative,” he warned, “is that these companies will suffer under the weight of the expat fees in an increasingly tough economic environment, profitability will take a knock and retrenchments (of non-skilled workers) will occur, or, alternatively, expats will be let go of.”

Lai King said enforcement of the tax laws would be tightened with an emphasis on timeous collections, aggressive tax audits on employment tax, VAT and corporate taxes and a concentration on hot issues such as transfer pricing and anti-avoidance laws.

Source: www.businessday.co.za

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