Budget 2023
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Gordhan will have a good story to tell, but...

Johannesburg - Administration may tighten up, sin taxes could rise and loop-holes may be plugged, but earth-shattering announcements are highly unlikely.

This year’s National Budget to be delivered on Wednesday is unlikely to contain any dramatic surprises and probably won’t include any changes to VAT or Capital Gains Tax rates.

Significant changes seem to be limited to non-election years. Think e-tolls, which were hurried in just before the end of last year.

A review of the various budgets since 1999 shows that during election years we usually see humdrum, business-as-usual budgets.

Major changes are usually announced during non-election years.

For example, the Skills Development Levy, an additional tax to fund skills development, was implemented in 2000.

The changeover from source- to residence-based taxation as well as the introduction of Capital Gains Tax (CGT) came into effect in 2001.

In contrast, the 1999 election year budget revealed very short recommendations and nothing startlingly new.

If anything, the budget speech itself brought some relief to the general public.

It announced reductions in income tax rates and – as always - sin taxes were increased.

It also announced a proposal to reduce the company tax rate from 35% to 30%.

The recommendations of the Katz Commission, appointed in 1994 to re-write certain areas of tax law, were also starting to filter through.
 
In 2004 - South Africa’s next national election year - there was again a solid, unwavering budget.

It included some tax relief and some regulations to protect the tax base, such as a tightening up on fringe benefits and share incentive schemes.  

The 2009 Budget also saw the inclusion of a number of "green" initiatives.

Environmental incentives and taxes like the plastic bag levy, carbon emissions tax and certain energy efficiency provisions all saw the light of day during this election year’s budget.  

The 2009 budget was slightly different though. That year was possibly complicated by the fact that it followed immediately after the global economic crisis, so does not necessarily follow the same trend, while the previous budgets were prepared during an economic upturn.

The economic showdown had a negative impact on tax revenues, despite an overall growth in the number of registered taxpayers.

It must be remembered, however, that only a very small percentage of registered taxpayers actually pay tax.

Last year, there were more than 14 million registered taxpayers, of which only six million actually paid tax.

In addition, the highest income earners - those who earn above R500 000 per annum - contributed more than half of all income tax collected.

During 2013, 8.4% of all taxpayers account for 54.5% of total personal income tax collections.

Even though 2009 was during the global economic slowdown, the 2009 budget held no surprises.

There were no tax rate adjustments announced, nor any major incentives. The Mining and Petroleum Resources Royalty Act was postponed to 2010.

Significant recent tax changes have all been announced during non-election years.

These include abolishing the tax on retirement funds in 2007 and in 2012, the minister announced an increase in the CGT rate as well as the amendments to change from Secondary Tax on Companies (STC) to Dividends Tax.

The trouble with this year's budget

The trouble is, in this election year, government needs to collect more to fund major initiatives such as the Youth Employment Subsidy, National Health Insurance, and the ambitious plans arising out of the National Development Plan (NDP).  

Many tax changes are now driven by what government wants to achieve via the NDP and we expect that amendments announced will be specifically aligned with that.

It appears that government has turned to the recently formed Davis Commission to examine how to achieve this funding – just as it turned to the Katz Commission soon after the changeover to democracy to help implement its plans.

The commission, led by Judge Dennis Davis, has been set up to review the tax system.  

We hope the Davis Commission will address certain areas of our tax law that is becoming very out of touch with reality.

The law contains certain provisions that hinder economic activity.

For example, there is a growing divergence between the accounting and tax treatment followed for certain transactions.

The financial services sector is an example.

The application of tax principles, which were designed many years ago and have not necessarily been updated to take into account changes in the economic or business environment, tend to cause many administrative complications.

These lead to unnecessary and time consuming queries from Sars.

I also believe that the Sars e-filing system, although excellent for making tax simpler in certain respects, needs to become more flexible.

Trying to get resolution when things have gone wrong through the online electronic filing system can be a nightmare.

For example, when a penalty has been levied incorrectly it can literally take years to be resolved.”

The good news

Also apparent from reviewing the budget over the past 15 years is the good news.

Revenue collections have increased dramatically while tax rates for both individuals and companies have gone down.
 
Sars has to be congratulated on revenue increases over the past 15 years. Total tax revenue in the 1997/98 year was R163m, compared to a total of approximately R810m collected in 2013.  

This number was obviously affected by inflation, GDP growth, wage increases and the increased tax base, but it also talks to the efficiency of tax collection and tighter administration.
 
The finance minister was talking about beefing up tax administration as early as 1999, and this has obviously paid off.

In 1999, the top marginal tax rate for an individual was 45%. Since then, the tax rate has been reduced to 40%.

In the same period, company tax rates have also fallen from 35% to 28%.  In addition, the maximum tax rate kicks in at a much higher income level.

In 1999 individuals earning R120 000 and above paid 45% in income tax.  Now, one has to earn close to R600 000 per annum before having to pay 40% in tax.  

South Africa also has a relatively low VAT and income tax rate.

We are, however, hit by a myriad of additional taxes such as e-tolls and the fuel levy.

Wise spending

For 2014, my wish is for a budget which focuses on wise spending

I hope the minister will come down heavily on government corruption and over-spending in this year’s budget.

We need to stimulate the SA economy if we are to live up to expectations of becoming the leading player in sub-Saharan Africa as this region moves to being ranked as one of the biggest global growth regions for 2014.

It’s become more difficult to grow the tax base as much as in previous years and the minister, therefore, needs to find other ways to fund new initiatives. We hope to see an even greater focus on the wise expenditure of taxpayers’ money.

I hope Gordhan will continue to focus on applying funds properly.

We were pleased to see the recent State of the Nation address costing significantly less than in previous years and hope to see more of this trend.

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