1. Presentation Footer1 PRESENTATION TO THE SCoF 2014 03 04 Presenter: Piet Nel: Project Director Tax

2. 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

3. 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 Review 2014 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”

4. Labour market … acknowledged that unemployment is the most pressing challenge facing the country. Budget Review 2014 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… IMF consultation

5. 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 IMF consultation The refund system will become effective during the fourth quarter of 2014. Budget Review 2014

6. 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?

7. 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 Review 2014 SAICA comments that “...wasteful expenditure” be reduced and that “... cost controls across government...” be implemented.

8. 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 Review 2014 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

9. 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 Review 2014 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

10. 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 Review 2014 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

11. Questions Piet Nel pietn@saica.co.za Thank you for your time