ANTHONY CHAIT
In a line of tradition of finance ministers having a personal theme, he entered the national assembly bearing a pot plant in a terracotta holder, and set it down on the podium where he was to deliver his address to the nation.
Back in the 1970s, the late Dr Nico Diederichs selected a tale from Aesop’s Fables as his theme every year. Subsequently, the late Senator Owen Horwood sported a signature well-worn leather briefcase under his arm for the occasion.
Mboweni chose the indigenous Aloe Ferox or Cape Aloe, which for many years adorned our 1c postage stamp in South Africa – in the days when we still wrote letters.
Having a long history of medicinal use, it is resilient, sturdy, and drought resistant, while withstanding the elements. In medicine, it is bitter, yet its non-bitter gel is used in cosmetics. The bitter-sweet analogy aptly sums up the state of our economy, and set the tone of his Budget speech.
At a glance
• Our personal income tax rates are mostly unchanged;
• Capital gains tax is also unchanged, at 18% for individuals;
• Value-added tax (VAT) is unchanged at 15%;
• Estate duty and donations tax are also unchanged;
• Company tax is unchanged;
• Dividends tax is unchanged at 20%; and
• The fuel levy increased 29c per litre for petrol, and 30c per litre for diesel
In Mboweni’s review of the economy, growth in gross domestic product was estimated at 0.7% in 2018, and remains poor. More positively, he said that it would rise to 1.5% in 2019, and then strengthen moderately to 2.1% in 2021.
An increase in personal tax rebates for the next tax year gives relief in the lower brackets, but no relief at the higher level. This will increase revenue for the government by R12.8 billion simply because inflation will increase salaries, resulting a higher tax bracket being reached.
Last year, VAT was hiked to 15%, but this year, Mboweni has introduced some more relief by extending zero-rated products to include white bread flour, cake flour, and sanitary pads. This will be effective as of 1 April 2019.
Last year, the hotly debated and controversial “sugar tax” was introduced. Beverages which contain more than 4g of sugar per 100ml were taxed at 2.1c per gram above the 4 gram mark. From 1 April 2019, the tax increases to 2.21c per gram. It is still a matter of public conjecture as to whether the government should be looking after our health via our tax system.
For the gamblers, in 2012, the government proposed a gambling tax of a 1% levy on all winnings to mitigate the negative effects of excessive gambling. Seven years later and still on the agenda, the draft legislation regarding this tax is to be published for comment in 2019. This is a further example of the issue of whether the government should be regulating gambling addiction through tax.
The minister had much to say about our tax administration. He has called on Judge Dennis Davis to assess the tax gap, which is the difference between revenue collected and what ought to be collected.
He relaunched the large business office, which was a unit of the South African Revenue Service (SARS) that dealt with groups of companies that were spread out over the country. This unit was initially proposed by former Minister Derek Keyes in 1993, disbanded in former SARS Commissioner Tom Moyane’s reign, and is now to be recreated.
Mboweni went on to cover the issue of having a SARS watchdog. There have been many stabs at this in the past. Initially, the SARS Service Monitoring Office was set up under late University of Johannesburg tax professor Lynette Olivier. Later, Judge Bernard Ngoepe was appointed as tax ombudsman. In this Budget, Mboweni now proposes an inspector-general for tax administration.
Moyane also encouraged the withholding of VAT refunds, which are common for any business that exports. The minister announced that this practice would be discontinued, and VAT refunds would be processed more timeously. This will have a negative impact on future estimates of revenue collection because government does accounts on a cash basis. It will also be significant for the cashflow of businesses who have had their refunds withheld in the past. This was a positive step on the part of the minister, because clearing this backlog is vital in the interests of proper tax administration.
The minister mentioned the number of important recommendations that had been made by the Nugent Commission of Inquiry regarding SARS. He confirmed that a new SARS commissioner would be appointed in coming weeks.
He also alluded to the establishment of an Illicit Economy Unit to fight the trade in illicit cigarettes, which will be an improvement on the former Rogue Unit.
Mboweni warned that cross-border information-sharing agreements with co-operating countries would help to fight tax evasion. For those who may not have regularised their foreign trusts and offshore bank accounts, this information sharing would result in information flowing freely to SARS.
The minister reassured the public that SARS’ IT system would be strengthened, a long-standing concern of the tax practitioner.
This budget has undoubtedly mixed the good with the bad, which makes it bitter-sweet indeed.
