Presentation Title

Presentation Title

Recognition of the Social Compact Government recognition of the link between taxes and government obligations to the public is an important step The overall sharing of the budget burden between tax increases and spending cuts is reasonable Governments restraint in terms of taxes shows an understanding of the constrained conditions within the private sector Offshore Amnesty (VDP)

We support the offshore amnesty given the timing The overall nature of the relief is reasonable and measured Query whether the timing should extend beyond 6 months? The October start date makes sense given the legislative process while providing taxpayers with the timing to prepare their affairs Earmarked Taxes The UIF, Road Accident Fund and the Skills Development Levy represent the most significant earmarked taxes Question:

Is earmarking working? What happens with excessive build-ups? What happens if the connected programme is unsuccessful? What I funds are simply better deployed elsewhere? In terms of 2015, was the proposal to reduce taxes pertaining to one fund unreasonable? Was the reversal justified? Retirement Reform We largely support the new technical amendments Rollover of excess deductions Use of contributions deductions against passive income Refinements to the defined benefit system

Annuitisation We opposed the concession to the Unions in terms of annuitisation The Unions abused the process and refused to properly engage Closure of Loan/Trust Schemes The use of trusts with zero interest loans is a very common method to reduce Estate Duty If the proposal is to proceed, we think that the initial transfer to the trust in exchange for the interest-free loan should be treated as a Donations Tax

event The proposed inclusion of trust assets into the Estate will be complex and unfair (applying retroactively to pre-existing schemes) Query whether the Estate Duty is really worth retaining? TRUST Share Incentive Schemes We applaud Treasurys decision to remedy the current problems associated with share schemes Unintended anomalies associated with BEE and rank-and-file employees should be removed High executive schemes seeking to convert taxable salaried income into exempt dividends should be closed Anti-avoidance: Section 8C share should treated buybacks (as well as selfliquidating dividends) as ordinary salary revenue

Removal of double tax: Share schemes should be taxed solely as ordinary salary revenue without any additional capital gains tax on the same gain R&D + Other Depreciation Incentives (Little Success) Research and Development While the October conference with DS&T appeared hopeful, the proposed guidelines appear more restrictive in terms of outcomes and processes The detailed objective of the incentive remains unclear (e.g. actual businesses) We suggest that the prior section 11B be restored so that taxpayers at least receive the normal deduction if taxpayers

do not pursue the incentive (now R&D often receives no deductions at all). Incentive Policy Treasury appears to view accelerated or excess depreciation allowances as a panacea to all ills Note: Many businesses do not achieve profit until 3-to-5 years have passed Some start-ups never receive any profits at all (preferring to sell the shares of highly successful startups) Many businesses have only small profit margins Cash incentives appear to be more effective but the DTI has become very restrictive (probably due to a lack of cash) Mining Community Infrastructure

We fully support the proposal to provide mining companies with deductions for community expenditure (these expenditures are a real economic cost in terms of cash and IFRS) Query whether this relief should be extended to other industries (e.g. farming) Note: Environmental rehabilitation during the life of mine should also be deductible Not Much for Small Business

The proposal provide little for small business outside SARS operations (small business desks, mobile app registration and single registration We note the ongoing need for small business to operate on a cash basis for VAT and income tax purposes Query whether anomalies should be removed (such as the rules against personal liability companies)? Query whether there is a better alternative to the turnover tax in respect of micro-businesses? Share Buyback Avoidance Schemes History Abusive share buyback schemes have been in the market for several years The schemes have become increasingly aggressive

(many no longer having a viable business purpose) Mechanism The basic scheme is the conversion of taxable (CGT) share sales into tax-free buybacks Buybacks before sales must be treated as CGT events Corporate Capital Gains The corporate capital gains tax is too high when share sales of controlled subsidiaries are involved The rate should match to standard dividends (15%) Advanced reporting Query whether advanced

reporting picked up the schemes? Base Erosion Noise AGREE Cross-border hybrids can be closed by: Denying deductions within South Africa for payments that are exempt abroad Removing the participation exemption for amounts received in South Africa is deductible abroad Treaty shopping can be curbed but should be done within the context of global treaty practice (several Africa countries are imposing unilateral overrides, thereby undermining their investment credibility) The treaty interest article with certain countries should be reconsidered

CONCERN The statements by the NGO and the OECD in terms of illicit flows are inflated and create false / unfair perception The over-emphasis on reporting is creating a huge and unrealistic compliance burden on companies (with little benefit in terms of audit) The Budget Proposal seems to indicate that excessive interest remains a concern, forgetting the existence of recent changes (e.g.): Section 23M Section 23N Thin Capitalisation Interest withholding Anti-hybrid rules

Cross-Border Legislation Should Not Make SA Companies Uncompetitive While the OECD is pushing hard on CFC legislation in terms of theory, little action is happening on the ground The US is retaining the check-the-box regulations that undermine much of their CF legislation The UK has softened their CFC legislation and lowered their overall rates The Netherlands is maintaining their gateway benefits In South Africa, we are: Tightening our CFC legislation in terms of activity Cutting our multi-group relief Uncertainty exists about Gateway status after the cross-border credit has been dropped Care must be taken not to enhance double taxation in Africa, which is a high-tax region Cross-Border Services

The policy around taxing local services by foreign entities needs to be revisited The withdrawal of cross-border withholding is welcome given the confusion but the special advanced reporting rules cause an excessive compliance burden The proposed focus should be narrowed: South African payment for services by foreign residents South African payments to foreign group companies as indirect compensation for foreign services Taxpayer Administrative Responses Times

Proposal It is proposed that the 30 day response time be extended for certain complex matters View We support the extension but wonder whether the 30-day period should be extended more generally The press of business makes rapid response very hard as a practical matter, especially for small business We should taxpayer have a must shorter response time that SARS?

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