2. Recognition of the Social Compact
Government recognition of the link between taxes and government obligations to the public is an important step
The overall sharing of the budget burden between tax increases and spending cuts is reasonable
Government’s restraint in terms of taxes shows an understanding of the constrained conditions within the private sector

3. Offshore Amnesty (VDP)
We support the offshore amnesty given the timing
The overall nature of the relief is reasonable and measured
Query whether the timing should extend beyond 6 months?
The October start date makes sense given the legislative process while providing taxpayers with the timing to prepare their affairs

4. Earmarked Taxes
The UIF, Road Accident Fund and the Skills Development Levy represent the most significant earmarked taxes
Question:
Is earmarking working?
What happens with excessive build-ups?
What happens if the connected programme is unsuccessful?
What I funds are simply better deployed elsewhere?
In terms of 2015, was the proposal to reduce taxes pertaining to one fund unreasonable? Was the reversal justified?

5. Retirement Reform We largely support the new technical amendments
Rollover of excess deductions
Use of contributions deductions against passive income
Refinements to the defined benefit system
Annuitisation
We opposed the concession to the Unions in terms of annuitisation
The Unions abused the process and refused to properly engage

6. Closure of Loan/Trust Schemes
The use of trusts with zero interest loans is a very common method to reduce Estate Duty
If the proposal is to proceed, we think that the initial transfer to the trust in exchange for the interest-free loan should be treated as a Donations Tax event
The proposed inclusion of trust assets into the Estate will be complex and unfair (applying retroactively to pre-existing schemes)
Query whether the Estate Duty is really worth retaining?
TRUST

7. Share Incentive Schemes
We applaud Treasury’s decision to remedy the current problems associated with share schemes—
Unintended anomalies associated with BEE and rank-and-file employees should be removed
High executive schemes seeking to convert taxable salaried income into exempt dividends should be closed
Anti-avoidance:
Section 8C share should treated buybacks (as well as self-liquidating dividends) as ordinary salary revenue
Removal of double tax:
Share schemes should be taxed solely as ordinary salary revenue without any additional capital gains tax on the same gain

8. R&D + Other Depreciation Incentives (Little Success)
Research and Development
While the October conference with DS&T appeared hopeful, the proposed guidelines appear more restrictive in terms of outcomes and processes
The detailed objective of the incentive remains unclear (e.g. actual businesses)
We suggest that the prior section 11B be restored so that taxpayers at least receive the normal deduction if taxpayers do not pursue the incentive (now R&D often receives no deductions at all).
Incentive Policy
Treasury appears to view accelerated or excess depreciation allowances as a panacea to all ills
Note:
Many businesses do not achieve profit until 3-to-5 years have passed
Some start-ups never receive any profits at all (preferring to sell the shares of highly successful start-ups)
Many businesses have only small profit margins
Cash incentives appear to be more effective but the DTI has become very restrictive (probably due to a lack of cash)

9. Mining Community Infrastructure
We fully support the proposal to provide mining companies with deductions for community expenditure (these expenditures are a real economic cost in terms of cash and IFRS)
Query whether this relief should be extended to other industries (e.g. farming)
Note: Environmental rehabilitation during the life of mine should also be deductible

10. Not Much for Small Business
The proposal provide little for small business outside SARS operations (small business desks, mobile app registration and single registration
We note the ongoing need for small business to operate on a cash basis for VAT and income tax purposes
Query whether anomalies should be removed (such as the rules against personal liability companies)?
Query whether there is a better alternative to the turnover tax in respect of micro-businesses?

11. Share Buyback Avoidance Schemes
History
Abusive share buyback schemes have been in the market for several years
The schemes have become increasingly aggressive (many no longer having a viable business purpose)
Mechanism
The basic scheme is the conversion of taxable (CGT) share sales into tax-free buybacks
Buybacks before sales must be treated as CGT events
Corporate Capital Gains
The corporate capital gains tax is too high when share sales of controlled subsidiaries are involved
The rate should match to standard dividends (15%)
Advanced reporting
Query whether advanced reporting picked up the schemes?

12. Base Erosion Noise AGREE Cross-border hybrids can be closed by:
Denying deductions within South Africa for payments that are exempt abroad
Removing the participation exemption for amounts received in South Africa is deductible abroad
Treaty shopping can be curbed but should be done within the context of global treaty practice (several Africa countries are imposing unilateral overrides, thereby undermining their investment credibility)
The treaty interest article with certain countries should be reconsidered
CONCERN
The statements by the NGO and the OECD in terms of “illicit flows” are inflated and create false / unfair perception
The over-emphasis on reporting is creating a huge and unrealistic compliance burden on companies (with little benefit in terms of audit)
The Budget Proposal seems to indicate that “excessive” interest remains a concern, forgetting the existence of recent changes (e.g.):
Section 23M
Section 23N
Thin Capitalisation
Interest withholding
Anti-hybrid rules

13. Cross-Border Legislation Should Not Make SA Companies Uncompetitive
While the OECD is pushing hard on CFC legislation in terms of theory, little action is happening on the ground
The US is retaining the check-the-box regulations that undermine much of their CF legislation
The UK has softened their CFC legislation and lowered their overall rates
The Netherlands is maintaining their gateway benefits
In South Africa, we are:
Tightening our CFC legislation in terms of activity
Cutting our multi-group relief
Uncertainty exists about Gateway status after the cross-border credit has been dropped
Care must be taken not to enhance double taxation in Africa, which is a high-tax region

14. Cross-Border Services
The policy around taxing local services by foreign entities needs to be revisited
The withdrawal of cross-border withholding is welcome given the confusion but the special advanced reporting rules cause an excessive compliance burden
The proposed focus should be narrowed:
South African payment for services by foreign residents
South African payments to foreign group companies as indirect compensation for foreign services

15. Taxpayer Administrative Responses Times
Proposal
It is proposed that the 30 day response time be extended for certain complex matters
View
We support the extension but wonder whether the 30-day period should be extended more generally
The press of business makes rapid response very hard as a practical matter, especially for small business
We should taxpayer have a must shorter response time that SARS?