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Top five Budget tips... for the Minister

Last Updated Feb 2011

Johannesburg, Monday, 21 February 2011- Amend the provisional tax legislation, encourage learnerships, help small business, and simplify VAT registrations.

These are top of the South African Institute of Chartered Accountants’ (SAICA’s) Budget wish list.

Amend legislation for provisional taxpayers

Releasing SAICA’s top five wish list in Johannesburg on Monday, Muneer Hassan, the SAICA’s project director: tax, urged that attention be given to amending current legislation governing provisional tax in order to prevent some taxpayers paying more than they should.

Provisional taxpayers should have their “basic amount” increased by 8% every year where their returns had not been assessed. Instead, said Hassan, their taxable income was being lifted by a massive 16%, leaving a gaping hole in their pockets, because the legislation was not an appropriate reflection of what could have been intended.

“The 16% increment is unaffordable, way above inflation and puts pressure on the livelihoods of people in this category.” The “inappropriately-drafted legislation” affected all provisional taxpayers whose annual taxable income amounted to R1 million or less.

“And in instances where they choose to go below the basic amount, provisional taxpayers expose themselves to severe penalties should the estimate not fall within 90% of the tax due as finally determined by SARS.”

Hassan recommended that a section of the relevant Act should be amended to read “from the end of such year to the beginning of the year of assessment in respect of which the estimate is made”. This would result in increments of 0% in the first year, 8% in the second and 16% thereafter.

Hassan highlighted another “more serious” provisional tax problem as the under-estimate penalty being linked to the taxable income numbers without regard to the actual tax paid. “The penalty will apply even if the actual tax paid by the taxpayer is correct or even if it’s an over-payment.”

If this was not changed, Hassan advised provisional taxpayers to seek help from their accountants.

“We hope the Minister takes this issue seriously and makes the necessary changes immediately to end this unfair overcharging of provisional taxpayers.”

Learnerships threatened by October end to tax break

Given the national focus on jobs, education and skills development, Hassan welcomed the recent simplifications to the learnership allowance in the Tax Act; simplifications designed to provide an additional incentive to employers entering into registered learnerships with employees.

“However, the section applies only to registered learnerships entered into before 1 October 2011 – a cut-off date that will no longer incentivise employers to enter into registered learnership agreements with employees.”  He argued that the cut-off date should be extended – urgently. The best case scenario would be if a training incentive became a permanent feature of the act.

Tax relief for small business

Turning to tax relief for small business, Hassan lauded the provision whereby qualifying small businesses which had invested personal resources into their business enjoyed capital gains tax (CGT) relief on the first R750 000 of any capital gain made on the disposal of small business assets.

A “small business” is defined as one where the market value of all its assets did not exceed R5 million at the date of disposal of its assets or interests.

Hassan characterised as “a problem” the requirement that a natural person must have held the “active business asset” or interest (at least 10%) in a company for at least five years.
“A natural person could have, in his own name, carried on the business for more than five years, but might have owned some of the individual business assets for less than five years. The capital gain on the assets owned for less than five years would not qualify for the exclusion.”
But, he pointed out, that if a small business was conducted in a company, the Act only required the natural person to have held the interest in the company for more than five years, although the individual assets within the company, attributed directly to the capital gain on the disposal of the interest in the company, could have been held for less than five years.
“The wording should be amended to address the anomaly to ensure that natural persons conducting small businesses in their own names qualify for the exclusion, even though they might have owned some of the assets for less than five years. The evident condition is that they had to have carried on the trade for more than five years.”

Raise tax threshold for small business corporations

Next on SAICA’s wish list was that the R14 million threshold for the taxation of small business corporations (SBCs) at a more favourable rate than other corporations be raised.

While acknowledging as “substantial” the benefits of being taxed as an SBC, Hassan said that to qualify as an SBC the gross income could not exceed R14 million. The threshold had last been altered in 2007, so an inflation-related adjustment was clearly necessary.

In addition, SBCs began paying 28% corporate tax when their taxable income exceeded R300 000. This taxable income threshold also needed to be increased to reflect inflation.

Simplify VAT registrations

Hassan ended with a plea that the VAT registration process be simplified. “Due to the revised, more stringent, VAT registration process there are in some instances lengthy time delays in obtaining a registration number.” Hassan explained that this held back business, in the process impacting on jobs, growth and delivery.

“We would like to see the entire VAT registration process modernised and made more efficient.”

 

MEDIA CONTACTS:

Bontle Tsikwe
Communications Coordinator: Corporate
SAICA Communications & Marketing Division
Tel: 011 621 6712
Email: bontlet@saica.co.za

Tim Schultz
Project Director: Communication
SAICA Communications & Marketing Division
Cell: 079 225 1070
Tel: 011 621 6713
Email: tims@saica.co.za

ABOUT SAICA:
The South African Institute of Chartered Accountants (SAICA), South Africa’s pre-eminent accountancy body, is widely recognised as one of the world’s leading accounting institutes. The Institute provides a wide range of support services to more than 30 000 members who are Chartered Accountants and hold positions as CEOs, MDs, board directors, business owners, chief financial officers, auditors and leaders in their spheres of business operation. Most of these members operate in commerce and industry, and play a significant role in the nation’s highly dynamic business sector and economic development.

SAICA serves the interests not only of the Chartered Accountancy profession, but also of society in general through its key objective of upholding professional standards and integrity. The pre-eminence of South African Chartered Accountants [CAs(SA)] nationally and internationally attests to the successes achieved by SAICA on a broad global canvas. SAICA’s members enjoy the privilege of using the highly regarded and prestigious CA(SA) designation. Members of SAICA are subjected to a Code of Professional Conduct, which provides guidelines for ethical and professional behaviour. Fundamental ethical principles to which CAs(SA) are expected to achieve include:

  • Integrity;
  • Objectivity;
  • Professional Competence and Due Care;
  • Confidentiality; and
  • Professional Behaviour.

SAICA members serve on international accounting bodies including; the Trustees of the International Financial Reporting (IFRS) Foundation, the International Accounting Standards Board (IASB), the IFRS Interpretations Committee, the IFRS Advisory Council and the Council of the International Federation of Accountants (IFAC). SAICA is also a member of The Global Accounting Alliance (GAA). 

For more information visit www.saica.co.za