1. Budget Speech 2014 Commentary on tax proposals 4 March 2014 Botlhale Joel

2. Page 2 Parliamentary legislative process ► Thank you to the Committee for allowing us the opportunity to present ► Taxpayers are most grateful for your willingness to always listen ► You role is not an easy task and we appreciate all your efforts

3. Page 3 General

4. Page 4 Cause for celebration ► Thank you for not increasing tax rates for individuals ► What about next year? ► Are we celebrating too soon considering that we need revenue for our increasing funding needs or can we get our expenditure under control?

5. Page 5 Individual and savings

6. Page 6 Tax preferred savings accounts ► We welcome the introduction of a tax friendly savings regime for individuals ► Initial contribution limit of R30 000 and the lifetime limit of R500 000 are probably too low ► However, too cumbersome to have a number of preferred savings accounts ► Simpler approach would be to have a unified set of savings thresholds /exemption ► Eliminate Interest and CGT, etc. ► Introduce a unified savings exemption

7. Page 7 Retirement savings reform ► Taxpayers welcome the lump sum withdrawal increases ► We support the last year’s legislative attempts steps to unify the retirement regime with revised percentage limits ► Higher thresholds should be considered

8. Page 8 Business

9. Page 9 Limited interest deduction for reorganisation and acquisition transactions ► Certain rules were introduced to curb the risk to the economy and fiscus through the use of excessive debt ► The rule seeks to limit interest deductions associated with reorganisations and acquisition transactions ► We welcome the observation that these rules have raised some anomalies: ► especially the need to increase the 40% adjusted taxable income limit with steady increases in general interest rates

10. Page 10 Public private partnerships ► Taxpayers welcome the opportunity to claim depreciation for improvements on Government land for all infrastructure projects ► What about improvements on private land (very common in the commercial factor)? ► Distinction between voluntary and obligatory improvements should be removed

11. Page 11 International tax

12. Page 12 High tax exemption for controlled foreign companies ► Preparation of hypothetical South African tax calculation even if the CFC already qualifies for foreign business proved to be burdensome ► Taxpayers welcome the proposal for the option to deem the net income of the CFC to be nil if the high tax jurisdiction test or foreign business establishment test is met ► Taxpayers will be saved costs on administration

13. Page 13 Secondary adjustment for transfer pricing ► Secondary adjustment for transfer pricing purposes to be a loan has had some administration challenges for SARS and the taxpayer alike (including exchange control issues) ► Support proposal to deem the secondary adjustment to be a dividend or capital distribution ► The capital distribution treatment has typical been applied to trusts and it will be interesting to see how the concept of capital contributions in relation to transfer pricing will be dealt with in practice

14. Page 14 Items of the forgotten past

15. Page 15 Limitation of interest deduction – Debts owed to exempt Persons ► 40% taxable limit for interest deductions for foreign owned SA subsidiaries remains problematic and should be addressed despite silence in the budget ► 40% does not take into account BBE minorities because loans are real ► Does not take into account capital intensive businesses, e.g. mining where there is funding expenditure through worldwide debt ► We are also concerned about the silence around the stand-alone thin capitalisation provisions of section 23M of the Income Tax Act ► Purpose of 23M is to get rid of soft loan but these loans are real ► Effective Jan 2015 and should be changed before then

16. Page 16 Business ► Clarification of trading stock calculations (promised in 2013 but not forthcoming) ► In light of the recent changes to IFRS, the basis on which the cost price of trading stock is calculated would be revised ► Following IFRS will make life easier for manufacturers and avoid unnecessary tax disputes ► Should we expect tax amendments addressing this issue to come through in 2014 or will this be postponed?

17. Page 17 International tax ► Commodity hedges associated with active operations (promised in 2013 but not forthcoming) ► Relief promised for commodity income emanating from active businesses ► Should be exempt like foreign currency emanating from active businesses ► No legislation action was taken in this regard. ► Will this issue be revisited in 2014 or will this be postponed to a future date and if so, what is the expected date?

18. Page 18 Protecting the tax base ► Reforming the taxation of trusts ► In the 2013 Budget Speech it was noted that the taxation of trusts would be revised ► No legislative changes have been forthcoming ► Will this issue be revisited in 2014 or will this be postponed to a future date and if so, what is the expected date?

19. Page 19 Imported e-commerce ► E-commerce (2013) – foreigners providing local e-commerce services required to register for VAT. ► Support the amendment when it comes to individual consumers ► Not when it comes to business to business because: ► the services would be zero rated in any event ► Very hard to register a business ► Going to force a lot of transactions which will not bring much value ► We are informally aware that SARS and National Treasury are looking to give options in this regard and relief for businesses

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