Budget 2014 SAIT’s commentary

OVERALL Congratulate the Minister on a rational budget Considering substantial challenges facing SA Expenditure ceiling welcomed Performance of the economy and economic growth are crucial to SA’s future success

OVERVIEW OF COMMENTS Economic Growth Entrepeneurship (Small business) Foreign Direct investment (FDI) Innovation (R&D) Reduction in Indebtedness (Savings)

SMALL BUSINESS RELIEF Streamling SBC, TT, VCC regime welcomed However: SBC regime replacement – ? await further details of rebates before commenting Turnover tax – sufficient to get informal sector in tax net? Relax entrance & compliance requirements, improve marketing & enforcement Turnover Tax - Reduce compliance costs, then why take away 4 mthly VAT submission? Economic Growth Entrepeneurship (Small business) Foreign Direct investment (FDI) Innovation (R&D) Reduction in Indebtedness (Savings)

SMALL BUSINESS RELIEF Grants tax exempt – welcomed, abuse to be monitored, s12P interaction? VCC changes – welcomed but perhaps more needs to be done CONCLUSION: Good changes, but Regular (yearly) monitoring of effectiveness of incentives Economic Growth Entrepeneurship (Small business) Foreign Direct investment (FDI) Innovation (R&D) Reduction in Indebtedness (Savings)

SMALL BUSINESS RELIEF SEZ– Bad news = C/Y & P/Y grant & incentive allocations in DTI budget (R5.5m vs R5.4m) almost the same Good news = Next 2 years 12,8% p.a. increase Bad news = R550m decrease in incentives estimates (SEZ legislation still being finalized) No news = on 15% SEZ tax rate + 10 yr window period CONCLUSION: No new incentives for SMMEs (Enterprise Investment Pgm closed in Sept 2013 & no replacement announced) Economic Growth Entrepeneurship (Small business) Foreign Direct investment (FDI) Innovation (R&D) Reduction in Indebtedness (Savings)

SMALL BUSINESS RELIEF TRAVEL DEDUCTIONS– New tables to claim deduction for personal use result in punitive changes Car value = R Fixed cost reduction reduced by 11% Despite fuel & maintenance costs increasing, increases not in line with actual costs Car value = R Fixed cost reduction reduced by 7% Fuel & maintenance costs reduced by 7.5% and 23%.. Economic Growth Entrepeneurship (Small business) Foreign Direct investment (FDI) Innovation (R&D) Reduction in Indebtedness (Savings)

SMALL BUSINESS RELIEF EMPLOYMENT TAX INCENTIVE Meaningful to SMMEs Congratulations on success of January take-up Look forward to further updates on its effectiveness OVERALL CONCLUSION Need for a comprehensive co-ordinated SMME Plan Davis Committee Report feedback guidance Economic Growth Entrepeneurship (Small business) Foreign Direct investment (FDI) Innovation (R&D) Reduction in Indebtedness (Savings)

FOREIGN DIRECT INVESTMENT CORPORATE TAX RATE To be “gateway to Africa” HQC regime not enough Global trends suggest SA’s corporate tax rate (28%) is high VAT rate (14%) is low CONCLUSION Cut corporate tax rate; Increase VAT rate Formalise SA’s International Tax Strategy Create certainty (transfer pricing) & stabilility Economic Growth Entrepeneurship (Small business) Foreign Direct investment (FDI) Innovation (R&D) Reduction in Indebtedness (Savings)

RESEARCH AND DEVELOPMENT LIMITED SUPPORT NDP = innovation hub of Sub-Sahara Africa…. But support by government to private sector limited Section 11D deduction= declined by 65% from 2010/11 to 2011/12 Not a healthy situation Economic Growth Entrepeneurship (Small business) Foreign Direct investment (FDI) Innovation (R&D) Reduction in Indebtedness (Savings)

RESEARCH AND DEVELOPMENT R&D as a % of GDP in South Africa Since R&D incentive introduced in 2006, R&D has steadily dropped Reasons: Numerous changes in legislation Administration of regime Concern: Support Programme for Industrial Innovation reduced from R200m to R50m – SMMEs affected!!

RESEARCH AND DEVELOPMENT SOLUTION: DST to alleviate backlog on approval process; DST to promote participation in incentive National Treasury must refrain from making more changes Certainty is needed!

SAVINGS & RETIREMENT REFORMS Commend: – Reinforcing need for individual savings – Increase in retirement tax free-lump sum Look forward to details of tax efficient savings vehicles Economic Growth Entrepeneurship (Small business) Foreign Direct investment (FDI) Innovation (R&D) Reduction in Indebtedness (Savings)

OTHER ISSUES Increase in rates needed: Estate duty abatement Donations tax exemption Donations tax deduction limitation percentage Further clarification: Social Security System Gambling Tax National Health Insurance Carbon Tax Taxation of trusts Restrictions on IP under exchange control regulations Tax Design Process NT and SARS commended on workshops held to date Should be applied to all legislation to prevent implementation with a ‘catch all phase’ and then a narrowing down.

WISH LIST: Reduce wasteful expenditure Link government spending to specific programs Accountability for non-delivery Prioritization of issues Formalise clear and consistent economic plans for: – Small businesses – Foreign Direct Investment – R&D – Savings