1. Introduction.

CHAMSA (Chambers of Commerce of South Africa) is a national umbrella body representing the AHI, FABCOS, NAFCOC, and SACOB. It serves to represent the united interests of organized business. CHAMSA welcomes the opportunity to participate in the public hearings on the Budget.

At the onset CHAMSA wishes to identify itself with the four key priorities for the decade ahead, spelt out by the Minister in his Budget address; namely, raising the level of investment, improving the quality of education and training, poverty reduction, and the building of sound institutions (competitive markets, entrepreneurship development, better governance and regulation, public service delivery).

This memorandum selects a few of the economic and taxation issues covered in the National Budget. These issues will be further explained at the hearing.

2. Economic

2. There is concern as to whether the revenue projections for the 2004/05 budget will be met, as they once more rely too heavily on a strong recovery in corporate taxes. Should such a recovery not materialise the resultant revenue shortfall will further increase the government borrowing requirement, thereby putting more upward pressure on long-term interest rates.

 

3. CHAMSA is in broad agreement with the government's macro-economic forecast for 2004. The forecast for 2005 and 2006 appears too optimistic and insufficient cognisance is taken of the normal business cycle. There is therefore the risk that the budget deficit as a percentage of GDP will be higher than budgeted in future years.

 

4. The experience of 2003/04 has illustrated the importance of exchange rate movements for the outcome of the budget. It is therefore suggested that in order to enhance the transparency of the budget process, the National Treasury should explicitly include its exchange rate parameters under its macro-economic forecast.

 

5. CHAMSA supports the objective of striving for price stability and notes that the CPIX inflation rate is within the target range. The containment of inflation must remain a government priority. Without such an objective the increase in social expenditure will be seriously jeopardised. In the fulfilment of this objective, CHAMSA notes the affect on the CPIX inflation rate brought about by 'administered prices' that is ascribed to 'monopolistic pricing practices' and weak 'regulatory governance'. The proposed investigations by the National Treasury into administered pricing are to be welcomed.

 

6. On a related regulatory issue, the Budget proposes to introduce certain tax administration measures designed to 'ease the tax compliance burden' on SMME's. The issue of compliance burdens generally, and not confined to tax, on business is a matter of singular concern to CHAMSA. To the extent that small business is seen as the major contributor to future job creation, CHAMSA would urge government to consider carefully the debilitating affect on business activity of its sundry regulatory enactments that place an inordinate burden on businesses that have limited resources for attending to compliance requirements. Accordingly, serious consideration should be given to requiring all proposed legislation to be accompanied by a 'regulatory impact assessment'. Such assessments should be standard practice for all proposed legislation and associated regulation.

 

7. The proposals designed to encourage and facilitate BBBEE initiatives are most welcomed and the tax regime proposals for accommodating share schemes as well as employee participation are sound initiatives for advancing the government's empowerment strategy.

 

8. Although no substantial measures have been announced for the relaxation of exchange control, it is noted that a task team is to be established to consider the regulatory framework applicable to the foreign asset limits allowed to institutional investors. The provision that will allow and encourage foreign investors to list and raise capital on the JSE is welcomed.

 

9. CHAMSA welcomes the apportionment of R12.3 billion over the MTEF period for the combating of HIV/AIDS. Business has made representations to the National Treasury with a view to accommodating the iniquitous tax burden contingent on those HIV/AIDS sufferers who are financially assisted by their employers but are treated off-site at clinics. The treatment costs can be considerable and the 'tax benefit' implications can be serious.

 

10. The Budget outlines an ambitious Public Works Programme that seeks to provide employment to 1 million people in the next five years. Employment will be created via infrastructure projects, environmental programmes, community based care programmes and small business/cooperative development. The sustainability of such job creation is obscure and will have to be addressed. Furthermore, its success places considerable reliance on lower tiers of government. The capacity demands on such structures will be severe and the private sector would wish to be involved where practical in assisting to develop and sustain such capacity needs.

3.1 Macro context for taxation

4. Sectoral tax issues

 

Mineral Royalty and Mining Tax: Although the effective date of the introduction of this taxation measure has been deferred to 2009, CHAMSA remains concerned as to the correctness of adopting revenue rather than a profit based tax instrument. Adopting the former will detract from mining investment and/or lead to minerals remaining unexploited.

Derivatives and financial instruments: CHAMSA notes the intention to research the taxation of derivatives and financial instruments, and would urge that this extremely complex area be approached with circumspection.

 

Car allowances: We also take cognisance of the proposed review of the taxation of car allowances, and trust that this will take place in close consultation with affected parties.

 

Taxes on Payroll: It is noted that in excess of R3 billion collected in terms of the Skills Development levy remained unspent in 2003. In 2004/05, the higher wage settlements will result in R400 million more than budgeted being collected. CHAMSA is concerned that with so many of the SETAs not being in a position to deliver on their mandate, the removal of such a large amount from the economy is unproductive to say the least.

 

5. Tax Administration