The National Treasury was unlikely to make major changes to the individual, corporate or indirect tax rates, but it was also unlikely to announce any new tax incentives when Finance Minister Pravin Gordhan tables the national budget next month, tax advisory firm Ernst & Young (E&Y) said on Thursday.

General tax and capital gains tax director Rob Stretch noted that the advisory firm expected "more of the same" this year, despite the global economic crisis and the local recession, which has left South Africa with a widening budget deficit.

The budget deficit for the 2009/10 financial year stood at an estimated 7,6% of gross domestic product (GDP), with some speculation that government could increase taxes to boost its revenue collection.

E&Y financial services analyst Graham Thompson said that South Africa, however, had the capacity to fund a budget deficit for a few years if it needed to, as it had the capacity to increase its public debt.

The country's public borrowings stood at about 24% of GDP, which provided it with some room to increase its debt levels without getting into difficulties.

Thompson noted that, in this respect, South Africa was much better off than many other larger economies, such as Greece and Spain.

E&Y pointed out that, globally, there has not been a consistent adoption of increases in individual, corporate or indirect tax rates.

Some countries have taken a short-term view and increased tax rates, while others were working with a longer-term view and rather tried to stimulate economic growth by maintaining or lowering tax rates.

Human capital and pay-as-you-earn (PAYE) tax director Vedika Andhee noted that given the many job losses suffered in South Africa in the past year, personal income tax rates would not likely increase.

Some shifts could be made in terms of the tax brackets, while individuals might also see some minor increments in rebates, she said.

Meanwhile, with regard to corporate tax, Stretch highlighted that new incentives were unlikely to be introduced this year, as older incentive schemes have not yet been fully implemented.

He explained that incentives to boost job creation in, for example, the manufacturing sector, had been announced, but that companies had been expected to submit applications to committee, which have not yet been established.

Stretch noted that while the legislation was often in place, government did not have the human capacity or capabilities to implement these incentive schemes.

Another change that would impact on the corporate sector would be the scrapping of the secondary tax on companies (STC), which would finally be phased out in favour of the introduction of a dividend tax.

While this move would result in lower tax collections, foreign companies from other territories, which were affected by the tax, better understand this system, said Stretch.

STC was supposed to have already been scrapped in 2008, but E&Y noted that there had been some negotiations with other territories that had delayed this process.

OTHER CONSIDERATIONS

Meanwhile, Thompson highlighted that it was unlikely that government's plans to introduce a National Health scheme by 2012 would come to fruition, given the huge cost considerations that this would require.

Further, Andhee said that the South African Revenue Service's (Sars') increase in the threshold of PAYE on travel allowances from 60% to 80% would also impact on individual taxpayers, although this was likely to result in only a minor change in individuals' take home pay.

E&Y also questioned government's plans to introduce a carbon dioxide emissions tax on all new passenger vehicles sold in South Africa, as from March 1, as this could add between R5 000 and R10 000 to the price tag of the average new vehicle.

Stretch noted that this tax seemed to be just another form of collections, with no indication that the funds would be spent exclusively on environmental protection or aspects.

The local automotive industry, which has suffered its worst financial performance and a 26% slump in new vehicle sales in 2009, has strongly criticised the implementation of this tax, saying that it was unable to import cars that produce less carbon-dioxide emissions, as South Africa did not currently have the appropriate fuel for these vehicles.

MINING ROYALTIES

Meanwhile, E&Y general corporate tax director Corlie Hazell noted that government would go ahead with the implementation of its Mining and Petroleum Royalties Act this year.

Former Finance Minister Trevor Manuel last year announced that the scheme would be postponed in light of the global economic crisis and its impact on the local commodity and resources sectors.

Hazell said that mining companies had until Friday to register under this scheme, while many mining houses had not yet done so.

Further, she said that while this scheme would make a significant difference in the country's coffers, there was one concern.

The calculation on this tax excluded interest and foreign exchange differences in terms of determining a company's profits. Even if a company recorded profit losses, it would still have to pay royalties, she said.

Hazell further pointed out that while this tax would bring about higher collections for the National Treasury, this sum might not be as high as previously expected, given the lower commodity prices.

While commodity prices have improved in recent months from the lows seen in early 2009, prices had still not reached the highs they had achieved in 2007 and 2008.