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Written by Andrew Duncan
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Thursday, 25 February 2010 |
After hearing the Budget, I thought my report would be a single paragraph, saying that there are no amendments of any legal consequence: no tax rate increases, no new taxes, and minor changes to the tax brackets.
After hearing Brian Kantor and National Treasury’s Keith Engel at a seminar, I have a different take.
What is important about this Budget is not its numerals, but the directions it reflects. It shows where the Ministry’s thinking is going in interesting respects.
Take Exchange Control and the morality of taxing death, two topics on which Walkers has been vocal. In both cases, the Budget is music to our ears.
Our last two Newsletters predicted Estate Duty becoming a tax of the past. It certainly belongs in the past -- death duty is as old as the Pyramids, preceding income tax by a few thousand years, and has been oft superseded by more sophisticated taxes, in particular Capital Gains Tax.
Perhaps the Minister was reading our mail. Estate Duty is now more clearly than ever on – excuse me – its deathbed. CGT will probably remain as a “Disposal” on death, though only affecting “non-personal assets”, which is to say share portfolios and property holdings, not Renoirs or antique gun collections.
One warning note here: some people take it that as Estate Duty falls away, there will be no need for Trusts. In fact, Trusts will still protect non-personal assets from disruption upon the death of the Donor, and will flourish. I predict that taxation of Trusts from a CGT point of view will become a major focus of Tax Legislation. Beware!
As for Exchange Control, on the surface this Budget brought forth another batch of relaxations. But the real import is deeper. As the experts at the seminar agreed, Exchange Control is dead in all but name. (A relief to me, who forecast its demise six years ago and has been alarmed to see it wriggling!) None too soon: Exchange Control bedevils international commerce and exchange rates.
The new Dividends Tax – into its third year on the shelf – continues to be held up. This tax now seems unlikely to be implemented in 2010 and possibly not 2011 either. The result is – no surprise – uncertainty. There are some who say that this is a harmless uncertainty, STC and Dividend Tax being not far apart. I do not agree. All uncertainty impacts on confidence and thereby impairs investment. A decisive step is needed, and I am intrigued to hear it said that the right decisive step may be to abolish both STC and Dividend Tax and raise Company Tax in compensation – preferably devising a tax on actual profits and not manipulated profits!
The Budget tells us that there is continuity on all fronts and that the Ship of State keep its course, while switching off superfluous controls. SARS will continue to broaden its base to compensate for static taxes, whether VAT, CGT, Customs & Excise or other -- apart, of course, from “sin taxes” where punishment is richly deserved!
Whether the Disposal on death will be extended to cover all assets in an estate is another matter.
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