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Johannesburg - Variously described as prudent, cautious and balanced, the budget outlined by Minister Pravin Gordhan on Wednesday should be regarded as good news for South Africa's high net worth individuals.
This is the view of Hendrik van Deventer, head of tax: Cape at leading private clients business BoE Private Clients.
He says that in anticipation of a widening budget deficit and the focus on poverty and unemployment alleviation, several forecasters had predicted a much tougher tax regime, which would inevitably have been aimed at the rich.
"Redistribution is a fundamental tenet of any taxation policy. It had been suggested, for example, that at the top end marginal tax rates might be increased to 41% or 42%. In the end, however, the budget deficit was smaller than many people had suggested it would be and the Minister, fortunately, took a more conservative and cautious approach, making only the usual adjustments to tax rates, tax thresholds and rebates.
"Individuals who earn R1m per annum will save R3 534 in tax in the new year," he said.
Van Deventer warns, however, that the government intends to adopt a much tougher stance on persons who avoided their tax obligations and advised high net worth individuals to get their house in order to avoid heavy penalties or additional taxes if their tax affairs are not above board.
He notes that the SA Revenue Service (Sars) intends to target large taxpayers and high net worth individuals and that an increase in audits can be expected.
Not amnesty
"The minister stated that a voluntary disclosure programme will be implemented over a period of one year commencing November 2010. This will provide non-compliant taxpayers a window of opportunity in which to disclose undeclared income or sources of income and pay their dues without incurring additional charges in the form of either a penalty or additional taxes.
"It is important to stress that this is not regarded as amnesty, but voluntary fisclosure. High net worth individuals who may be concerned about non-compliance would be well advised to seek professional advice and, where appropriate, to take advantage of this opportunity," he said.
Van Deventer noted that the minister had indicated an intention to review several other tax provisions and issues which might impact, whether negatively or positively, upon high net worth individuals in due course.
These included denying the participation exemption on preference share dividends, guaranteed dividends and any other dividend derived directly or indirectly from the republic; the extension of the window period on the liquidation of residential property entities; possible relief for VAT vendors subjected to the claw-back of VAT on property developments where units are let for a period of time prior to being sold; and the potential abolition of estate duty.
"In general, the budget has brought better news than many had expected and it should have the effect of stimulating economic growth. It's safe to say that the minister has dispensed the medicine in accordance with what the doctor ordered," he concluded.
- I-Net Bridge
