Commentary - Budget 2012: The Minister emphasises infrastructure The global body for professional accountants

Presenters  Stiaan Klue - Chief Executive – SA Institute of Tax Practitioners  Nicolaas van Wyk - Head: Technical Policy – ACCA South Africa  Mike Schȕssler - Economist The global body for professional accountants

Agenda Opening and general remarks Tax policy and simplification Economic overview – The global environment – South Africa – Recommendations Summary: Building a Sustainable Future The global body for professional accountants

Stiaan Klue Chief Executive

General remarks  Well done to the Minister and his team  Infrastructure injection welcomed  Relief for micro businesses step in right direction  Concerns: - Hefty burden on already over stretched taxpayers (6.2 m taxpayers vs population of 50m) - The global body for professional accountants

General remarks (2)  Concerns (cont…): - Broadening the tax base is imperative (11% of GDP is in the informal sector) - Tax compliance statistics a concern (issue raised with Office of Commissioner 2009) - Relief for micro businesses (cash flow management) The global body for professional accountants

Nicolaas van Wyk Head: Technical Policy, South Africa

Tax simplification - Current proposals We support the initiatives to alleviate the cost of doing business for micro businesses Businesses with a turnover of less than R1 million Payments for Turnover Tax, VAT and Employees’ Tax (PAYE) only twice a year from 1 March Red tape will be reduced to file only one single, combined return for all these taxes twice a year. From 2013 these businesses will have to file only two returns, instead of about 18 Lower tax rates for small business corporations

Tax simplification – Issues to consider A simplified and understandable tax system lowers the cost of doing business Tax simplification is for all business types – Micro, Small, Medium and Large Less compliance costs means more cash for investments and salaries Tax Administration Bill is step in right direction to simplify administration More is needed!

Tax simplification – Issues to consider Companies spend +-two months per year complying with tax regulations UP research in 2004 Tax compliance costs for small businesses close to R per year (Only four tax types considered – Income, VAT, PAYE, Provisional taxes) Increase in tax laws due largely to new anti-avoidance measures Small businesses have no time to engage in esoteric tax planning and are simply trying to cope with the volume of laws.

Tax simplification – Proposal Establish a permanent “Office of Tax Simplification” Provide independent research and advise to National Treasury Permanent representation from business, practitioners, academia, and unions Purpose Identify the areas of the tax system that cause the most day-to-day complexity and uncertainty for small businesses Recommend priority areas for simplification Perform costs benefit analysis on new business taxes Provide independent advice to parliament and national treasury Policy paper provides more information Economic analysis provided by our economist Mike Schussler

Mike Schȕssler

International Leading indicators. economists.co.za

Some IMF growth forecasts

Euro Area outstanding debt securities. economists.co.za

South African Economy: Slower growth and higher inflation. It’s true we have a R3,3 Trillion Rand economy. The global body for professional accountants

GDP detail and History Agriculture, forestry and fishing -3.0%0.9%3.2%3.3%4.1%1.9%2.1% Mining and quarrying -4.2%5.8%-0.3%-0.4%1.0%3.5%3.0% Manufacturing -10.4%5.0%2.4%1.1%2.0%4.3%4.1% Electricity, gas and water -1.6%2.0%1.2%0.6%2.3%2.5%2.7% Construction 7.4%1.5%-1.2%1.1%1.8%2.8%2.3% Wholesale-, retail-, & accomodation -2.5%2.2%3.0%2.1%2.7%4.0%4.4% Transport, storage and communication 0.6%2.9%4.2%3.8%4.6%5.1%5.7% Finance, real estate and business services 0.9%1.9%3.5%2.2%3.1%3.7%3.1% General government services 4.1%3.0%3.4%3.7%3.6%3.4%3.5% Personal services -0.3%0.6%3.7%2.4%2.0%2.6%3.1% Total value added at basic prices -1.5%2.8%3.1%2.3%2.8%3.6% GDP at market prices -1.7%2.8%2.9%2.4%2.8%3.6% 17

Mining as % of GDP.

Retail sales and rates.

Monetary conditions are rather loose too. economists.co.za

Forecasts.  Inflation to rise to 6.2% according to Treasury in We think 6,2% is realistic.  GDP Growth to slow to 2,7% according to government.  Low Interest rates to stay for the whole year.  Fighting a battle against the slowdown / recession likely to win but at a higher debt cost.

What did happen in the last four years.  Debt to GDP generally higher than economic growth.  Deficit rose from about 23% to about 37,8% of GDP or 15 percentage points to GDP. - Debt guarantees rose as did salaries.  Loose Fiscal policy to counter act recession.  Still no reduction in business rules outside of SARS, Treasury which are easier to handle anyway. - Special Economic Zones will help in future.

One part that continues to grow although we are promised that it will grow slower. economists.co.za

Percentage that average government person gets paid more than non-farm private sector. economists.co.za

What this means  If SA were to pay the average civil servant the same as the average formal private sector we would immediately save R100 billion a year. - (That is five Gauteng freeway projects a year – free not tolled no extra taxes etc.)  IF SA were to pay civil servant the only 90% of private sector as they carry less risks and exposure than private firms. - Then SA can build a coal fired power station every year R111 Billion.- again no increases in electricity prices

If Civil Servants and SOE’s and government agency’s are added and the 90% rule applies.  The savings will increase to at least R165 billion which means that South Africa could pay for two and a half Gauteng freeway projects plus a coal fired power station every year without raising fees or prices or taxes.  It would also make the private sector a lot more competitive and we would create thousands of extra jobs as infrastructure improves and costs decline.  The Tax base would grow and SA would be more sustainable

South African Spending. economists.co.za

Another thing rising quickly government guarantees economists.co.za

Government debt on the way up…….. economists.co.za

General Government remains behind with infrastructure spend……. economists.co.za

Words and facts. Government words say infrastructure spend every year but the fact speak differently but we will give benefit of the doubt here. Government speaks out against higher compensation of employees in government but again the fact so far have said otherwise. – In the last 10 budget we were promised lower government compensation, but on average the compensation came in 15,7% higher than when first announced.

Estimates of individual taxpayers and taxable income

What we really like.. Saving products announcement. Help for the middle class. Lower than inflation increases in welfare payments. Simplified tax for micro businesses. Bring the deficit down slightly over the last year and a seemingly big commitment to keep debt to GDP below 40% for the next three years.

What I would have liked to have seen. More Simplification for small and medium business. A real case of someone being named and shamed for not doing their job. A greater commitment to keeping taxes lower and help in keeping spending on salaries in check – as the new growth path suggested business do. A bigger thank you the world’s smallest tax base in a relative sense.

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