e-taxline Alert

Comments on Medium Term Budget Policy Statement 2017

Key executives from Grant Thornton South Africa provide commentary and insights following Finance Minister Malusi Gigaba’s Medium Term Budget Policy Statement presented this afternoon, Wednesday 25 October 2017:

On the revenue shortfall

“While there was an expectation that there would be a revenue shortfall for the 2017 financial year, it is very concerning to note that there was no clear plan on how the R50billion shortfall would be filled (The minister did confirm that only part of the shortfall will be funded by way of sale of shares in Telkom). It is even more concerning to note that the country’s contingency reserves would be utilised during this year and for the coming three years.  These funds are generally only utilised when there is no other suitable alternative, which is certainly cause for alarm.” 

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

On GDP Growth and Unemployment

“Growth for the 2017 year has been revised downward to 0.7% and unemployment still stands at a staggering 27.7%. Given the current slow economic growth highlighted by the Minister this afternoon, coupled with the high levels of political uncertainty, the Minister’s budget presentation today has not painted a picture for which global investors would want to rush to buy into.”

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

On funding of the NHI

“We have all been wondering for some time how the NHI will be funded.  Today’s MTBPS provides that government will look at proposals through adjustments to the medical tax credit which raises the possibility of a reduction in the subsidy. The problem here is, as per today’s presentation by the Finance Minister, the medical tax credit system seems to be doing fairly well at assisting lower and middle income earners  - so where does this really leave the proposal or the funding?

“Our concern here is that this proposal once again could be targeting the small net of higher income earning individuals (also known as the “golden goose”).   The problem in this instance is, though, as per the Ministry’s own graphs, this income source would not lead to significant income for the state.  It does leave us all still wondering how the NHI will well and truly be funded?”

Hylton Cameron, Director: Tax

On Transfer Pricing and Country-By-Country Reporting (CBCR)

“In this afternoon’s MTBPS by Minister Gigaba, the Minister said: ‘Country-by-country reporting, which will give SARS insights into risk areas of multi-national enterprises (MNEs), will begin at the end of this year (31 December 2017). The first exchanges will begin next year.’

“This has been a hot topic for multinational enterprises and consultants for a while, because of its far-reaching implications for business.  Now, government has also acknowledged its importance. SARS may have lost some experienced staff members over the last few years but it has recently recruited a senior member with vast experience in the international tax space, from a consulting firm and this individual is likely to assist with this going forward. CBCR, master file and local file regulations will assist SARS, and tax authorities around the world, with risk profiling of larger MNEs and this is likely to increase scrutiny overall.  In addition, we expect a rise in more targeted questions / audits from SARS.”

Marcus Stelloh, Associate Director: Transfer Pricing