Budget has introduced a wealth tax analysts

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Amanda Visser – Business day 24th Feb

THE budget has effectively introduced a wealth tax on individuals through the increased level of taxation on the real drivers of the economy, says Eugene du Plessis, tax director at accounting firm PKF. Commentators slated the idea that individuals received any relief in Finance Minister Pravin Gordhan's third budget, saying that they would in fact be paying almost R33bn more this year. Matthew Lester, tax professor at Rhodes University, said at a BDO post-budget briefing in Pretoria yesterday that only 378 300 individuals were paying 54% of all the individual taxes, 19% paid no taxes as they fell below the tax threshold, and 24% of the registered taxpayers paid 4% of all the taxes.

Speaking at another post-budget briefing organised by tax advisory and audit firm Mazars, head strategist at ETM Analytics Russell Lamberti also criticised some of the tax proposals, saying the budget was unlikely to help grow an economy struggling to create employment and reduce the income and poverty gap. It was not true that the government had provided relief to income tax payers because all the government had done was to "adjust the4ix brackets to account for inflation". He expressed concern that the government was spending More than it earned, and questioned whether it would achieve its target of sustainable real gross domestic product growth of 4% over the coming years. Prof Lester said there were not enough wealthy people in the country to tax. At present individuals carry 34% of the tax burden, companies 21% and VAT 26%.

Prof Lester said he saw a shift towards companies taking a little bit of pain this year. He referred to the coupling of increases in capital gains tax and the rate at which dividends will be withheld. It was a "lethal cocktail". It will increase the effective tax rate on a distributed company capital gain to 32% from 22%. That was massive and might just encourage companies to retain capital gains and reinvest, he said. Prof Lester said this year's budget had brought bigger changes than he had seen in the past two decades. People would have to re-examine their investment portfolios, which would need lot of restructuring. He said pension, provident and retirement annuity funds had now become the tax havens for individuals in SA. '"One can grow your money tax-free and deal with the taxes at retirement," he said.

David Shapiro, director at Sasfin Securities, did not have a lot of praise for Mr Gordhan's budget. Speaking at the PKF budget debate in Johannesburg, he called it a "spiteful" budget with the attitude of "we will tax you because we can". PKF national chairman Andrew Hannington warned if South Africans were not responsible citizens by paying for the "wonderful highways they are enjoying", there would be no new dams, bridges ot roads in the future.