South Africa

Details

  • Service: Tax
  • Type: Business and industry issue
  • Date: 2011/02/24

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2011 Budget Speech requires business to participate in regulatory processes 

Business should be alert to the implications of the 2011 Budget Speech, which allocated the numbers to a range of priorities that were already in the public domain through President Jacob Zuma’s State of the Nation Address.

These issues affect the regulatory environment as well as the expected taxes, employment-creation, continued infrastructure development and social grants, which emerged as key themes alongside provincial and municipal allocations from the national fiscus. The SARS-announced Voluntary Disclosure Programme (VDP) (for personal and business income taxes) announced in the Budget Speech last year, would also help with revenue-generation from South Africa’s tax base.

 

These were some of the views to emerge from a panel discussion among experienced KPMG professionals in an analysis of the broader implications of the 2011 Budget Announcement. Speaking on the tax implications of the announcement and pending legislative amendments, Alan Field, Managing Director for KPMG Tax and Legal, said that business should not “underestimate the paradigm shift in the introduction of the New Companies Act or Income Tax Act over the next three years.” The effects of the amended Act would be ‘far reaching’. Field encouraged the corporate sector to “engage in the public debate around regulation so that business influences the ongoing design of our tax system” through participation in parliamentary and other public processes designed to shape the legislation, given long-term effects of re-designing the corporate tax architecture in SA.

 

On further taxation, KPMG Director Dermot Gaffney, Head of Indirect Tax, described the additional ‘sin taxes’ as ‘problematic’. “We all know the figures, but do we understand the principle? Cars and carbon taxes, alcohol and cigarette taxes faced their usual increases, but does this actually create behavioural change? I very much doubt it.” Gaffney also urged government to recognise that the alcoholic beverages industry, for example, contributed to 548 000 jobs (4.5% of total employment) and amounted to 3.25% of total tax revenue collected in 2009/10. Total revenue from the industry added up to R19.5bn in 2009.

 

Government is seeking to attract foreign direct investment and it again emerged as a topic in the 2011 Budget Announcement. Carolyn Freeman, Head of International Executive Services at KPMG said that “over time, it has been made easier for foreign investment in the country. However, the requirement for foreign companies to employ a workforce which is 80% South African might be an issue for new companies. It might be less of an issue for established business, however.” The current complex regulatory environment might have a negative effect on seeing South Africa as a gateway to continental economies. “Countries like India and China are interested in doing business in Africa,” said Freeman. “However, if South Africa is seen as having too many complex regulations, it might discourage these countries from investing.” On the flip side, initiatives such as the introduction of an international headquarter company regime in last year’s budget, a proposed revisit of the controlled foreign company regulations in this budget, etc are all examples of a foreign-investor-friendly outlook from the Finance Ministry of the SA Government.

 

Regarding National Health Insurance (NHI), the minister had mapped out a ‘safe route’, said Sandile Hlophe, Managing Director for Transactional Services and Restructuring. “The minister is not inventing new mechanisms to generate revenue. He will be examining existing revenue systems such as VAT and a payroll tax. Any new mechanism is likely to be difficult to introduce and implement by 2012.” The minister had clearly signalled his intention on the shape of the NHI to be introduced, however. “The announcement of funding for the development of family health care teams and allocation for the improvement of district-based maternal and child health services are significant. The minister is clearly signalling the introduction of step down facilities in an integrated NHI,” said Hlophe.

 

Senior Economist at KPMG, Frank Blackmore adds that the 2011 Budget Announcement and its key thrusts were largely expected. “In 2011, we are not expecting a World Cup or huge infrastructure commitments. It was therefore expected that Treasury would deliver a middle-of-the road announcement based on some of the commitments made by the president in the State of the Nation Address earlier this month.”

 

Pierre du Toit, Advisor to KPMG, added that “there has been a lot of discussion about the developmental state and the welfare state. What we saw in this budget was a combination of welfare and developmental expenditure. Time will tell if the balance is right.”

 

Contact

Contact

Alan Field
Managing Director
KPMG Tax and Legal
Tel: +27 (0)11 647 5746
taxandlegal@kpmg.co.za

 


Click here to view our panel discussion of the 2011 Budget.

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