South African Budget 2012 : Credible & Well Accepted By Most

Pretoria - While South Africa's budget for 2012 has been described as credible, broadly balanced and confidence building by business, others have criticized it for increasing the dividends tax rate, targeting high-income earners and not doing enough to reduce teacher-learner ratios in the rural areas.

Business Unity South Africa (BUSA) said it welcomed Minister of Finance Pravin Gordhan's Budget Speech and was pleased with the central priority the budget placed on the expanded infrastructure program.

"This initiative should not only aid in building modern infrastructure, but will also reduce poverty, create decent work and expand employment opportunities," said BUSA.

Busa said the budget "rightly" emphasized the need for a collaborative effort from all South Africans to work together to realise a rapidly growing, vibrant and inclusive job-rich economy against the backdrop of a weak global economic outlook.

It was further pleased with the emphasis on the need for South Africa to be globally competitive, further tax relief for small business and micro-enterprises and a simplified tax regime for SMMEs.

It said the small and emerging business sector had the greatest potential for job creation.
"We welcome as business additional allocations of R55.9 billion over the next three years and an additional R9.5 billion for an economic support package.

"We also welcome the 43 major infrastructure projects and further detail on how they will be funded. In this vein, we look forward to the infrastructure summit which the President is planning to convene soon," said Busa.

Des Kruger, Director: Tax at Webber Wentzel law firm said that the increase in the dividends tax rate had come as a shock, given that all previous announcements and the law as it stands at present indicate a 10% rate.

"The proposed 50% increase in the dividends tax rate to 15% so late in the day will no doubt cause considerable administration burdens on those companies and regulated intermediaries that have to account for the tax," said Kruger.

He added that foreigners owning property in South Africa would be adversely affected by the increase in inclusion capital gains tax (CGT) rates because non-residents are required to pay CGT on the disposal of any immovable property owned by them in South Africa.

However, Kruger did welcome the proposal to allow a deduction for interest incurred on the acquisition of shares to be deductible in certain circumstances.

PKF chartered accountants and business advisers was surprised by the unexpected increase in the rate at which the new Dividends Tax was being levied at 15% - when 10% had been anticipated - and the increase in the rate of Capital Gains Tax (CGT) from 10% to 13.3% for individuals, from 14% to 18.6% for companies and from 20% to 26.7% for trusts.

Eugene du Plessis, director of tax at the company said the budget had hit the high net worth individual (HNWI) sector.

"They are targeting the HNWI with measures that can only affect the wealthy, and by removing legitimate means of reducing their tax burden. While this is being viewed as 'a more equitable means of spreading the load', targeting the high proportion of their income that HNWIs earn from passive investments in reality it is making South Africa such a high tax country for the wealthy that there is little incentive for them to live here as opposed to more developed countries," said Du Plessis.

The coalition of the Congress of South African Trade Unions (COSATU), the South African Council of Churches (SACC) and the South African Non-Governmental Organisation Coalition (SANGOCO) said while it welcomed that government spending will be increased to 32% of GDP in 2012/13, it was concerned at the capacity in national departments, provincial governments and local municipalities to spend the allocated amounts in a manner that will boost the industrial capacity of the economy and create decent jobs.

The coalition, referred to as the People's Budget Campaign (PBC), said it was concerned that the budget deficit would decrease to 3% of GDP by 2014.

"The unpredictability of the current economic crisis in Europe will continue to impact our economy negatively. It is therefore important for government to avoid decreasing the budget deficit over the MTEF and thus prevent our economy from deteriorating into a second round recession.

"Cutting deficit spending is simply not a sound economic measure given the global economic crisis and the triple crisis we continue to face at home, said the PBC.

While it did welcome the allocation of infrastructure spend to the tune of R3.2 trillion over the three year period, it said it must be complimented by the need to increase the capacity of the state to appropriately spend the allocated amounts.

"We welcome the proposed establishment of the municipal infrastructure support agency that will enhance infrastructure development capacity of the rural municipalities."

The coalition said it rejected the proposed adjustments in tariffs by the minister regarding e-tolling in Gauteng to pay for the Gauteng Freeway Improvement Project.

"The PBC rejects the continued reliance on user pay principle in the development of road infrastructure. We do not support e-tolling and call for a reliable, safe, affordable and integrated transport system," it said, noting the acknowledgement made by Gordhan that the e-tolling system will have a negative impact on the road users in the province and the workers in particular.

The coalition was appalled that some learners were still being taught in mud houses and demanded the elimination of them in the financial year. The budget also failed to reduce teacher-learner ratios in the rural and township schools.

The Banking Association of South African, meanwhile, commended SARS for raising R739 billion under difficult economic conditions. "The national budget has, for the first time, passed R 1 trillion, highlighting the significant expenditure by government," it said.

The association said Gordhan had demonstrated visionary, honest and practical leadership.
In his speech Gordhan commented on the high banking costs in South Africa.

The association said while increasing competition in the sector was leading to a more efficient sector with lower costs, it must be noted that South Africa had high broadband costs, costs of protecting cash and significant compliance costs.

It said it was working with National Treasury in this regard.

- BuaNews