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PRESENTATION TO THE SCoF

2014 03 04

Presenter:

Piet Nel:

Project Director Tax

• SAICA’s National Tax Committee wishes to thank you for the opportunity to submit written comments and make oral presentations

• Our comments will deal with the Fiscal Framework and some of the tax related proposals made by the Minister in the 2014 / 15 Budget

Opening remarks

Economic outlook

GDP growth, which declined from 2.5% in 2012 to 1.8% in 2013, is projected to increase to 2.7% in 2014, reaching 3.5% in 2016.

Budget Review2014

SAICA comments

Pages 1 - 2 of our comments

Growth is the biggest risk to the budget.

The projected increase for 2014 is optimistic.

The “tax recycling problem”

Labour market… acknowledged that unemployment is the most pressing challenge facing the country.

Budget Review2014

SAICA comments

Page 2 of our comments

The view is that this budget should have started the implementation of these structural reforms.

… unemployment in South Africa is expected to remain high … … quicker implementation of … structural reforms could result in higher growth and job creation…

IMFconsultation

The employment tax incentive

“the unemployment rate is 25% (34% including discouraged workers), youth unemployment rate at 50% ...” “all net job creation post 2009 has taken place in the public sector, ….”

SAICA comments

Pages 2 - 3 of our comments

The incentive should be expanded to the special economic zones and specific sectors

The refund mechanism should be introduced as soon as possible

IMFconsultation

The refund system will become effective during the fourth quarter of 2014.

Budget Review2014

Government debt SAICA comments

Page 3 of our comments

The main concern is that South Africa’s debt is expected to increase from the 39,7% (for the 2013 / 14 year) to 41,9% in the 2014 / 15 year. The projected state debt in 2016 / 17 will, as a percentage of GDP, be at 44,3%.

The fastest-growing item of main budget expenditure is debt-service costs.

Is the present economic path is sustainable?

Contingency reserve Page 4 of our comments

… there has … been a drawdown on the contingency reserve. As a result, the contingency reserve for 2014/15 and 2015/16 has been reduced to R3 billion and R6 billion respectively, before rising to R18 billion in 2016/17.

Budget Review2014

SAICA comments

that “...wasteful expenditure” be reduced and that “... cost controls across government...” be implemented.

Pages 4 – 5 of our comments

… tax-free savings accounts will be implemented, creating a mechanism to increase household savings and support financial inclusion.

Budget Review2014

SAICA comments

The current limit in the exemption from normal tax in respect of interest earned by individuals will not be increased

Savings

The tax-free savings accounts should be implemented with effect 1 March 2014.

The introduction (in 2014) of a new top-up retail bond product is welcomed - stokvels allowed

Small business Pages 5 – 6 of our comments

… government aims to create an environment that supports both informal traders and entrepreneurs who seek to develop small businesses into larger enterprises.

Budget Review2014

SAICA comments

… reduce compliance costs and facilitate access to equity finance

Subject to public consultation

… replacing the reduced tax rate regime with an annual refundable tax compliance rebate

Wage incentive refunds

Zero-rating – farming

Page 6 of our comments

It is recommended that the transfer pricing provision be amended to state that the secondary adjustment is deemed to be a dividend or capital contribution depending on the facts and circumstances.

Budget Review2014

SAICA comments

We therefore welcome the announcement.

It is hoped that the guidance with respect to the adjustments will be issued by SARS shortly.

International

Questions

• Piet Nel• pietn@saica.co.za

Thank you for your time