Johannesburg, 28 Feb 2003
Some interesting insights into the Budget were provided at Deloitte & Touche`s new format information/discussion workshops on this year`s Budget held last night and this morning.
In an amazing tour de force, considering the time he had available, Billy Joubert, Partner at Deloitte & Touche Taxation Services, prepared a comprehensive, yet concise, overview of Minister Manuel`s document, which served as a general introduction and a platform from which a discussion on burning issues was launched.
The first session, which took place just a few hours after the Budget Speech, focused on the services industry, whereas the following workshop targeted the manufacturing, retail and trade industries.
Dave Kennedy, National Director of Taxation Services at Deloitte & Touche, pointed out that the hard work of previous years by improving tax collection methods and implementing severe fiscal discipline enabled Minister Manuel to introduce tax cuts while increasing government spending within the limits of responsible behaviour and international guidelines. He welcomed the move to ensure that Government Departments first demonstrate that they had the ability and resources to spend money properly before it was budgeted for them. Kennedy added that from an economic point of view, a recurring theme was an emphasis on savings and on business stimulus, which boded well for future growth. "Allowances on building and refurbishment of buildings will help combat urban decay and should lead to the creation of employment," he said.
However he cautioned that the year ahead could be a difficult one with a stronger exchange rate requiring greater economic discipline. "At 3%, South Africa currently has the strongest growth rate of any developing and most developed countries," he said, "But I think that the projected growth rate of 3.5 % for 2003 is somewhat optimistic."
It was clear at both sessions that the Forex Amnesty, VAT and PAYE were uppermost in the minds of all.
Opinion was divided on how many people would take advantage of the amnesty. Some believed that the successful tax amnesty of 1995 indicated that many would seize the opportunity to set their minds at ease over accumulating illegal funds, which both SARS and SARB are now targeting. Anne Bennett, Partner International Tax, Deloitte & Touche, cautioned that there was a growing international intolerance for illegal funds and that SARS was in the process of accumulating information on South African overseas account holders - it would therefore be most opportune to use the Amnesty to declare this income.
Responses to questions about VAT explained that SARS can now initiate both civil and criminal procedures in the event of incorrect use of export documentation - this is part of the Government`s drive to enforce compliance as strictly as possible.
There was some consternation in the retail trade about the new requirement that all suppliers must provide their VAT registration number for any tax invoice issued to them. Few retailers know all their suppliers or hold even names and addresses, yet they are now required to provide tax invoices for any amount above R1 000. "Compliance should actually be driven by the recipient," said Severus Smuts, Deloitte & Touche partner who specialises in VAT. "Since it is the supplier who needs to claim those monies, it is in his interest to ensure that his VAT registration number figures on the tax invoice."
"With regard to PAYE," said Joubert, "Government has clearly found that the previous 10% penalty was inadequate and is now threatening a hefty 200% penalty for non-compliance. In another, positive move, there are indications, though not clearly spelled out, that directors of companies will no longer be as severely penalised by PAYE as in the past, but treated more like other employees in the organisation. However, we still need clarity on the issue."
The IT industry, operating with very tight margins, welcomed the elimination of ad valorem tax on computers. Unfortunately the industry finds itself in somewhat of a quandary at this point, since duty will be abolished only from 1 April 2003, so it will have to find innovative ways of handling the situation to its benefit and that of its clients.
The freight forwarding industry stands to benefit from the new zero rating on supplies through bonded customs warehouses, but vendors supplying goods in South Africa while transferring ownership outside the country`s borders can no longer benefit from zero rating.
In concluding the two sessions, John Stanley, partner-in-charge of Deloitte & Touche`s Global Employment and Individual Solutions and Transfer pricing divisions, warned that Government was adopting a particularly severe approach to non-compliance in any form. He referred particularly to transfer pricing policies.
"There are two new questions on the IT 14 document," he said, "Does your company have a transfer pricing policy document that supports your transfer prices, and Have the company`s auditors conducted reviews on your transfer pricing policies." The implications, he cautioned, were serious, and he encouraged companies to undertake an in-depth transfer pricing study and have supporting documents ready.
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