Higher taxes on the cards - expert

Speaking to media ahead of his mini budget speech on Wednesday, Nene said the Davis Tax Committee “will look very closely at the need” for an increase in VAT and it will “look at any other taxes in our scheme”.

Although the National Treasury has made it clear that it will approach the issue of finding additional revenue sources with caution given the current weak economic outlook, it has not closed the door on raising taxes, warned Lesiba Mothata, chief economist at Investment Solutions, in reaction to the mini budget.

"Through the work of the Davies Committee, it has been shown that value-added tax (VAT) remains one of the options available to the Treasury to fund economic goals expressed in the National Development Plan," explained Mothata.

"The Treasury has said there is a low probability of a hike in VAT, but it cannot be ruled out. Corporate taxes were also brought back to the table."

Speaking to media ahead of his mini budget speech on Wednesday, Nene said the Davis Tax Committee “will look very closely at the need” for an increase in VAT and it will “look at any other taxes in our scheme”.

VAT is currently at 14%.

Mothata said while the discussion in the mini budget is not of the actual corporate tax rate, the issue of tax avoidance through spreading earned profit from different jurisdictions was brought up. For him this remains a key discussion point even globally.

On carbon tax, he said the Treasury will soon issue a tax bill for public comment.

Annuities

Treasury appears determined to push ahead with some form of compulsory savings preservation and annuitisation, said Steven Nathan, CEO of 10X Investments.

Nathan said a somewhat obscure remark by Nene, read together with comment in the Draft Response paper, appears to be a veiled threat that if the concept of annuitisation is not accepted, then provident funds will lose some, or all of their tax advantages.

Nene said "we are engaging with labour to ensure that members of provident funds enjoy the full benefit of tax deductions for savings plans that provide an assured income in retirement. I hope that these proposals will be prioritised for discussion in Nedlac over the period ahead".

The comment in the Draft Response paper read: "The key principle to note is that the tax deduction is designed to encourage retirement savings and at the same time promote preservation and annuitisation, and hence the tax deduction should not be allowed where there is no annuitisation."

Another statement by Nene Nathan regards as significant is that “work on social security reform proposals is at an advanced stage, to accompany retirement reform".

In was indicated in its Draft Response Document of October 15 2015 - relating to the draft taxation laws amendments bill 2015 and draft tax administration laws amendment bill 2015 - that government plans to release the Social Security Reform paper before year end, Nathan pointed out.

Savings and retirement

Wilfred Moyo, economist and investment strategist at Metropolitan, said he found it reassuring to see that government is encouraging tax-free saving and that there has been notable public interest in those products.

For Andrew Davison, head of investment consulting at Old Mutual Corporate Consultants, it was pleasing to hear Nene refer to the imperatives of ensuring people preserve their savings when they change jobs and that they then use those accumulated savings to provide a sustainable income in retirement.

“The retirement industry is currently preparing responses to the draft default legislation issued by National Treasury earlier this year, with comments due by end of October. The principles embodied in these draft proposals have the potential to significantly enhance retirement savings and hence the benefits that people receive," said Davison.
 
It was also encouraging for him to see that the Department of Social Security is working on “social security reform proposals [that are] at an advanced stage” to accompany retirement reform.

"Both of these elements are necessary in order to provide comprehensive protection for individuals,” said Davison.

Source: Fin24, News24