CORPORATE TAX: No change in tax rates for companies
But executives of SA’s major companies should take note that the Sars large business unit is back
Finance minister Tito Mboweni’s bold plan to "sow the seed of renewal and growth" and return SA to fiscal prudence and prosperity will not mean higher taxes for companies.
In his budget presentation Mboweni noted that tax revenue projections for the 2018/2019 year have been revised downwards by R42.8bn against the 2018 budget estimate. Higher-than-expected VAT refunds contributed to this disappointing result.
But this was a planned initiative by the SA Revenue Service (Sars) to manage its VAT credit book.
VAT refund arrears ballooned to R41.8bn by September 2018. By the end of January, the revenue service had reduced this to R31bn. It expects to run this down to a normalised level of R22bn over the course of the coming financial year, so there will be more VAT refunds on the way.
In the Treasury’s analysis, the contribution corporate tax makes to the fiscus has been stagnant over the past two years. For last year’s budget speech (for 2018/2019), the Treasury expected to raise R231bn from corporate taxes. It subsequently revised this down to R218bn, representing an actual increase of just 0.5% over the 2017/2018 period.
For 2019/2020, the Treasury expects corporate tax receipts to increase by just 5% to R229.6bn — more or less in line with inflation. Given the much larger increases in revenues from personal income tax and VAT, corporate income tax’s contribution to budget revenue will shrink this year and over the medium term.
Between biblical references and quotes, Mboweni offered unequivocal recognition of the role the private sector must play in creating employment: "The private sector is the key engine for job creation."
To this end, he announced that income eligibility thresholds for the employment tax incentive will be increased.
As per the Budget Review: "From March 1 2019, employers will be able to claim the maximum value of R1,000 per month for employees earning up to R4,500 monthly, up from R4,000 previously. The incentive will taper to zero at the maximum monthly income of R6,500."
While no changes were made to corporate tax rates, there were a number of developments corporate taxpayers would do well to digest, most notably those relating to the administration of tax collection.
Mboweni said Sars — under a new commissioner, expected to be appointed in the coming weeks — will re-establish the large business unit, which will be launched in April.
The unit, first established as a specialised service centre for managing the tax affairs of the country’s largest corporations, was a major source of tax collection before it was dismantled by former Sars commissioner Tom Moyane.
Besides having their taxes more critically assessed, executives of the most powerful corporations might have to reacquaint themselves with the "gentle, friendly reminder" they received when Pravin Gordhan was in charge of Sars — a phone call from the commissioner nudging them to pay their taxes on time and in full.
Mboweni indicated that more changes may be on the cards for the way corporate tax is administered. These could flow from recommendations judge Dennis Davis makes regarding the "tax gap", or the difference between actual revenue collected and what ought to be collected.
The finance minister already has cross-border tax evasion in his sights. He said the government will enter into information-sharing agreements with "allies" to fight this practice.
The Treasury has indicated that rules regarding "excessive debt financing" would be reviewed to ensure implementation of best practice.
In tandem with the department of trade & industry, the Treasury will also explore the introduction of an export tax on scrap metal.
Reviews will be conducted on the urban development zone tax incentives, and the tax treatment of oil and gas activities.
Ferdi Schneider, the national head of tax at audit and accounting firm BDO, welcomes the reintroduction of Sars’s large business unit but says he is disappointed at the lack of tax adjustments to attract more foreign direct investment (FDI).
"I would have liked to have seen the introduction of a tiered system for FDI," he says.
"This would make corporate tax rates more attractive for non-resident, non-SA companies investing here, as I think Mauritius gets more than its fair share of these flows.
"But overall it was prudent not to change tax rates, given the country’s fiscal position and outlook for economic growth."