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Here's what I think of the upcoming budget speech and what it means for you

by , 24 February 2016
Dear Tax Bulletin reader,

It's that time of year again, where the hopes and dreams of the new financial year are either built up or crushed by the budget speech.

We've seen a lot of comments coming out of the industry from experts in the field, and many believe we're definitely going to see an increase in the tax rates. This is a very real probability judging by the commentary leading up to the budget speech.

I'm in two minds about the increase to tax rates, because the country is in a very difficult position at the moment. On the one hand, the government needs more money to float its very large and excessively staffed boat, but on the other hand, it needs to grow the economy and increasing taxes may well inhibit growth.

Keep reading to see why we're heading for a disaster...


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Why we're heading for a disaster
Generally, when someone earns R20 000 a month, but spends R25 000 a month, they're heading for disaster. And the smartest thing to do would be to stop spending in excess of your income. This doesn't seem to be the case with how our taxes are spent. The government would rather increase taxes as opposed to reduce spending.
But recall that Gordhan was responsible for limiting (and in some cases cancelling outright) the use of credit cards at all levels of government back in 2013, specifically to reduce spending.
So we know he's fully capable of introducing austerity measures. Add to this the fact that there's absolutely no chance he can be removed from office by 'going against the grain' at this stage (Hello David van Rooyen), so he finds himself in a very powerful position.

Gordhan will be strategic about his decisions
We hope the prudence he's shown in the past will continue to influence his budget speech this year. And the government starts treating money like the rest of us – if you don't have money to buy stuff, then don't buy stuff. If you can't afford the payments on that Ferrari (read: Nuclear power plant), then don't sign a contract to buy it on finance.
It's not a sure thing tax will increase, and it appears as though government is painfully aware of how an increase in tax will impact on the economy, thanks primarily to Gordhan's approach. A clear indicator of this came from what we know about Pravin Gordhan's meeting with leaders of a number of very large South African businesses, specifically on the topic of the country's economy.
If the decision is made to increases taxes, Gordhan will need to be extremely strategic in which taxes he increases. If he increases personal income tax, we could see consumer spending decrease. If company tax is increased, we may see job losses. Tax the wealthy, and they'll simply move their wealth offshore. Touch VAT, and those most vulnerable will be made moreso as the cost of basic goods increase.

Changes to tax law you WON'T hear about in the news...
There are going to be a lot of tax questions that will need answering this year...
In the coming months the tax law will undergo a number of significant changes.
The majority of these will affect the duties of tax professionals and, in particular, their liability for offences committed under their watch.
But you won't hear about these changes on the six o'clock news.
I doubt they'll even get a mention in the national press.
If you want to be 100% certain you're up to speed with changes to TAX Law,  try the Tax Watch Newsletter today 

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So, what's my view on tax?
I've always held the view that tax should always be prospective, and should adapt with the times in that new economies are always being created. Look at the way new technology is being adopted in the energy field – solar and wind power is now powering many countries and is now a cheaper source of energy than coal and other fossil fuels. Combine that with the advancement in graphene-based technology, and the next industrial revolution is at our doorstep. We have to be a part of it.
Take for example this talk of buying nuclear energy from Russia. Our country is a perfect candidate for renewable energy, and not only do we have the industry experts capable of manufacturing this tech within our borders (perhaps even exporting our products to the rest of Africa eventually), but we have an absolute excess of unutilized sunny space in the North West province. Cleaner and cheaper than nuclear energy.
Imagine how many local jobs and supporting industries we could create with one trillion Rand. Why send that wealth to the Russians for nuclear? Is it vested interest? This country should be where your interest vests.
Our tax legislation and government spending needs to drive us towards growth by strategically incentivising the development of the base economy – agriculture, manufacture, refining, production, scientific discovery. We've seen a move toward this with the favourable treatment of venture capital companies and Special Economic Zones, but more can be done. More must be done. But increasing tax will not accomplish this.
Let's see what the budget speech brings.

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