Budget

Comments and insights from the Minister’s Budget Speech

Key executives from Grant Thornton South Africa provide commentary and snippets following Finance Minister Malusi Gigaba’s National Budget Speech presented on Wednesday, 21 February 2018: 

 

General comments

“We applaud the Minister for the statement in his Budget Speech today when he said: ‘Transformation calls for more than growth alone, it requires a fundamental shift in the way that wealth is created and shared. The structure of the economy needs to be transformed to allow for new ideas, businesses and economic activities to emerge and thrive.’  We absolutely agree with this statement – South Africa needs a new inclusive capitalism, inclusive growth with fair benefits flowing to all stakeholders and reductions in income inequality.”

Gillian Saunders, Head of Advisory Services at Grant Thornton

 

“Last year during the 2017 Budget Speech Minister Gordhan strongly re-iterated transformation mentioning it more than 50 times!  Thereafter, ‘radical economic transformation’ became the general political and public sector “war cry”. This year Minister Gigaba has continued the theme, but he used the term ‘Inclusive Growth and Transformation’ and variations thereon, some 15 times. The word ‘radical’ was mentioned once by the Minister today, and ‘radically transforming’ four times.  This was a welcome approach to a critical change which we need to bring about – inclusive growth – but without the emotional and highly charged ‘radical’ term that often scares and hinders investors.”     

Gillian Saunders, Head of Advisory Services at Grant Thornton

 

“The limited fiscal drag relief afforded to individual taxpayers was expected. In essence, it’s a disguised form of additional taxes that at face-value is more palatable than an outright increase in the marginal tax rates. Individual taxpayers will, however, continue to carry an increasing burden of the overall tax liability.”

Eugene du Plessis, Director and Leader: Tax at Grant Thornton

 

“The disposal of SOEs was not a feature of the Budget, although one would expect that in their current state there are very few buyers, if any, that are queuing up to snap up an interest in any of the SOEs.”

Eugene du Plessis, Director and Leader: Tax at Grant Thornton

 

On the increase of VAT to 15%

“Although a VAT rate increase was a possibility, the potential political and social outfall that this might have caused was thought to be too high to warrant a VAT increase. The bold move by the Minister of Finance to increase the VAT rate by one percentage point, albeit that it might have been forced upon him given the lack of other viable options, is considered to be a fairer approach to the increase of the tax burden.”

Eugene du Plessis, Director and Leader: Tax at Grant Thornton

 

“The increase in excise duties and ad valorem duties will also broaden the tax base on which the higher VAT rate will be applied.”

Eugene du Plessis, Director and Leader: Tax at Grant Thornton

 

“We would have expected at least a 2 percent VAT rate increase taking into consideration the administrative burden and business process and system changes VAT vendors will have to endure to affect such change in their ERP systems and accounting treatments. Such a significant increase by 2% would have also increased the tax collection and provided the Minister with more scope to reduce the tax burden on the poor by also expanding the zero-rated products or possibly by increasing social grants.”

Cliff Watson, Director: Tax at Grant Thornton

 

On retaining the corporate tax rate at 28%

“Retaining the corporate tax rate at 28% was a necessity as South Africa’s corporate tax rate remains high in comparison to some of its major trading partners. Government will have to evaluate this position in future to ensure that the tax base is not eroded through profit shifting to lower tax jurisdictions and that South African remains relevant as an investment destination.”

Eugene du Plessis, Director and Leader: Tax at Grant Thornton

 

On reviewing the 2017 amendments regarding debt relief and share buy backs/dividend stripping rules

“We welcome the review of 2017 amendments regarding debt relief rules that have unintended tax consequences for financially stressed companies.  This is further applauded also because of the review of the changes to anti-avoidance rules dealing with share buybacks and dividend stripping that override corporate roll-over tax relief for legitimate reorganisation transactions.”

Barry Visser, Director: Tax at Grant Thornton

 

On submission of DWT returns

“We are pleased that the Minister has repealed the administrative burden to submit Dividend Withholding Tax (DWT) returns by persons who received dividends exempt from DWT.”

Barry Visser, Director: Tax at Grant Thornton

 

On the fuel levy increases

“We are concerned about yet another increase in the fuel levy because this will also impact the low-earning commuters of the country. The Taxi associations have already alluded to increasing their operational costs.”

Dineo Mokono, Manager: Sustainability at Grant Thornton

 

On Carbon Tax

“We are pleased with the Minister’s mentions of the carbon tax implementation, not only the Greenhouse Gases (GHG) emissions but also other environmental degradation activities. This will ensure that organisations and the people of the country truly start to take matters of the environment seriously.”

Dineo Mokono, Manager: Sustainability at Grant Thornton

 

“We are happy with the Minister’s announcement regarding the implementation date of the Carbon tax regulation (1 January 2019), as this now will give organisations time to align their strategy with the tax requirements. This matter has been in debate for quite some time. Stakeholder engagement on this matter has been progressive and eventually there is implementation.”

Dineo Mokono, Manager: Sustainability at Grant Thornton

 

On improving procurement processes

“We applaud the Minister’s decision to instruct all government institutions to pay suppliers on time, because this will ensure that businesses can thrive by not being crippled by debt whilst waiting for payment from departments and public institutions. This will ensure business continuity and it will also ensure that government continues to be a preferred partner to work with.”

Dineo Mokono, Manager: Sustainability at Grant Thornton

 

“We applaud the minister in increasing collaboration with all law enforcement agencies to fight corruption and the abuse of the Supply Chain Management (SCM) system and that this process will not only impact non-compliant suppliers of goods and services but the net will also be extended to those in the SCM process itself.”

Yugen Pillay, Partner and Regional Lead: Public Sector at Grant Thornton

 

On small business initiatives

“We welcome the Ministers focus on small business development by increasing government spending on them. It is generally very difficult for small businesses to raise capital for operational purposes and we applaud the Minister for making an additional R3.3billion available for spending on small businesses.”

Yugen Pillay, Partner and Regional Lead: Public Sector at Grant Thornton

 

On state-owned companies

“It was pleasing to note that the Minister acknowledged that decisive and drastic intervention is required, at a leadership level to stabilise state owned companies. State owned companies form an important and integral part in growing the economy.  Stabilising these companies will pave the way for a more efficient infrastructure environment.”

Yugen Pillay, Partner and Regional Lead: Public Sector at Grant Thornton

 

“While it is noted that there is a long-term turnaround strategy for SAA and power purchase agreements are going to be concluded with independent power producers for Eskom, very little was mentioned on what plans are in place to increase capacity and productivity at these companies, nor at any of the other state owned companies to meet the growth trajectory of 1.5% in 2018.”

Yugen Pillay, Partner and Regional Lead: Public Sector at Grant Thornton

 

“It is further noted that government will be providing financial support to state owned companies by the disposing of non-core assets, agreements with strategic equity partners or direct capital injections by government, however this again points to the fact that government assets are going to be realised to stabilise current State owned companies rather than to focus on the growing and increasing of capacity at these companies.” 

Yugen Pillay, Partner and Regional Lead: Public Sector at Grant Thornton

 

On infrastructure

“We welcome the indication by Minister Gigaba that government will revisit the NDP goals particularly as progress on many Special Infrastructure Projects (SIPs) has been frustratingly slow in recent years. Recognition of implementation difficulties and the establishment of the Budget Facility for Infrastructure is a positive move to revitalise investor interest in this arena.”

Christelle Grohmann, Director: Advisory Services, Grant Thornton

 

On tourism

“We welcome the SA Tourism budget increase from R1,14bn to R1,23bn, an 8,2% increase – well ahead of inflation, and given that many budgets accelerated by less. We appreciate the commitment to the SONA statement that we will “enhance support for destination marketing.”

Gillian Saunders, Head of Advisory Services at Grant Thornton

 

“We applaud the Minister when he said: ‘South Africa needs to be bold and coordinated in building sectors where we have comparative advantage and can be truly world class. These include, but are not limited to: mining, agriculture, tourism, as well as manufacturing

and service exports to the rest of Africa and globally.’ But, of all the sectors mentioned – Tourism has huge potential and this is an easy win for South Africa. Tourism truly is the low hanging fruit.”

Gillian Saunders, Head of Advisory Services at Grant Thornton

 

“In order to build tourism for South Africa, we will need to free up access and address red tape, such as employment regulations, while simultaneously increasing marketing.”

Gillian Saunders, Head of Advisory Services at Grant Thornton

 

“It is encouraging to hear the Minister mentioning all the small business initiatives – these will also help tourism businesses to start-up and thrive.”

Gillian Saunders, Head of Advisory Services at Grant Thornton

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