Three tax wishes for Trevor

Johannesburg - Tomorrow (February 20) is the unveiling of the National Budget in SA, and taxpayers and tax gurus who submitted their tips and wishlists to Finance Minister Trevor Manuel are counting down the hours to see whether the National Treasury (NT) has made things easier or cheaper.

But high earning individual and corporate taxpayers expecting any form of relief will be disappointed.

Experts say that in the light of South Africa's exuberant spending culture, it is highly unlikely that the NT will pour fuel on the fire by further increasing disposable cash in the hand of the consumer.

Although an increase in the value added tax (VAT) rate would have the same effect, investment professionals polled by Fin24 don't think authorities will increase the indirect tax due the negative effect it will have on the poor. Some personal tax relief is expected for low and middle-income taxpayers, however.

The biggest cry for change lies in the smaller details of tax legislation.

According to Kemp Munnik, tax director at BDO Spencer Steward Services, the 15% retirement funding portion that is deductible from taxable income, and before tax is calculated, hasn't been changed in years.

This refers to retirement annuity fund contributions. "If government wants taxpayers to save, tax incentives are a good place to start," he says. An increase of up to 20% will be acceptable.

Munnik says that it is also likely the monthly contributions to medical schemes of R530 for each of the first two dependants on a medical scheme, and then R320 for each additional dependant will also be increased.

"Hopefully the application of these and other medical expenses will also be simplified, as many employees of the South African Revenue Service (SARS) and various tax practitioners aren't very sure of the rules or the application."

Tax incentives for offshore skills?

Three more tax issues were included on BDOs wish list.

According to Graham Earle, director at BDO's Durban office, corporate tax breaks for companies promoting education among their staff and communities should be allowed. Unheeded in last year's budget, such a tax break would be: "... a win-win situation for both the company and for the government," says Earle.

"The second tax wish is applicable to expatriate tax," says Earle.

"In light of global skill shortages, doesn't it make sense for government to make tax incentives available, to attract talent from abroad?"

For example the Netherlands allows a 30% rebate on income before tax is determined; Australia allows housing costs as a tax deduction, and Belgium calculates tax on a pro-rata basis depending on how long expats reside in its country.

BDO's final wish applies to pension funds. Says Earle: "The Income Tax Act (Act) only allows employers to deduct 10% of contributions made to shortfalls of an employee's pension fund. In practice SARS will allow up to 20%.

"For example, if 'Employee A' retires from 'Company B' and there is a shortfall of 60% on his/her pension fund payout, the company decides to make up the shortfall by making a cash contribution.

"Even though the company disallows the retiree to be at the mercy of the state, it is only allowed to deduct up to 20% of the contribution from its taxable income," says Earle.

"Wouldn't it be wise for the state to allow a higher percentage, at least 30%, or just allow any additional contributions as a deduction made to employee pension funds? It will not only contribute to the local savings temperament, but also take pressure off government to provide for the older generation," he says.

Although all these suggestions make perfect sense and will be a welcome change, it is all in the hands of Manuel and the pages of his budget speech. Here's hoping!!

- Fin24